Under the definitive agreement reached by the two chains, Tenet will pay $21 per share in the all-cash transaction, which includes the assumption of $2.5 billion in Vanguard debt, which Tenet will refinance. The $21-a-share payout represents a premium of 70% and is the highest price for the stock since Vanguard's initial public offering in 2011.
Tenet says it has already identified at least $100 million to $200 million annually in savings with the acquisition. The deal was unanimously approved by the boards at both chains,
Investors responded favorably to the news. On an otherwise dour day on Wall Street, Nashville-based Vanguard saw its share prices soar by more than 67% for a 52-week high before closing at $20.70, just below the Tenet payout. Tenet shares rose 4.5% and closed at $43.73.
Analysts were caught off guard.
"Most of the M&A talk lately has been around names like HMA, so this was a surprise," said Joe France, healthcare analyst with Cantor Fitzgerald.
France says Vanguard was not necessarily on the radar screens for an acquisition because of its 2010 acquisition of Detroit Medical Center. "The appetite for an acquisition that includes that, which is about one third of their revenue, is fairly limited," he said.
"For a company like Tenet which has large urban medical centers it's a promising transaction because if it is successful—and there are reasons to believe that it has already been successful—then they can replicate that in other markets across the country and that opens up a whole new opportunity. This is something like an HCA might do in Kansas City or Colorado, but it is not something that has been done by most of the other hospital chains. But Tenet has a lot of experience historically in taking large hospitals and making them successful. Obviously Detroit Medical Center is a much bigger undertaking but I think they believe they can do it or they wouldn't have made this offer."