Tenet Board Rejects CHS Cash Offer

The board of directors at Tenet Healthcare Corp. on Friday afternoon unanimously rejected a reconfigured $6-a-share, all-cash offer from rival Community Health Systems, Inc., saying the proposal valued at $3 billion "grossly undervalues the company and is not in the best interests of Tenet or its shareholders."

Tenet noted in a media release that the April 18 CHS offer was the same price that CHS had offered on November 12, 2010 in a deal that included $5-per-share cash and $1-per-share of CHS common stock. The Tenet board also unanimously rejected that offer.

In a letter Friday to CHS President/Chairman/CEO Wayne T. Smith, Tenet President/CEO Trevor Fetter and Board Chairman Edward A. Kangas said the latest CHS proposal "continues to undervalue Tenet. Since Community Health's original $6 per share proposal was made, Tenet has demonstrated improving business trends, including the best fourth quarter results in seven years. In addition, industry fundamentals are improving, and Tenet's Outlook for 2011 and longer-term financial performance reflects strong growth."

Dallas-based Tenet's public rejection of the latest CHS offer is the latest twist in a very public and very bitter battle between the rival for-profit hospital chains that started in November with the Tenet board's initial rejection of the CHS offer. Scorned, CHS went public with its offer in December, alleging that the Tenet board was keeping its shareholders in the dark about the deal. CHS announced plans in January to pack the Tenet board with its own proxy candidates, who would approve the acquisition.

Earlier this month, Tenet filed a federal complaint alleging that CHS overbilled Medicare by as much as $377 million using medically unnecessary admissions that improved its bottom line and appeal to investors.

Franklin, TN-based CHS fire back that: "Tenet's allegations are completely without merit and we intend to vigorously defend ourselves against these unfounded and irresponsible claims." Last week, CHS asked a federal judge in Dallas to throw out a "baseless lawsuit," saying it was "entirely without merit and contains a number of fatal flaws."

Also Friday, CHS issued a statement saying it was "disappointed that the Tenet Board of Directors rejected our all-cash offer and refuses to engage with us. Instead of focusing on creating shareholder value, the Tenet Board elected to bring an irresponsible lawsuit.  Despite the Board's strategy of entrenchment, we remain ready to engage in constructive discussions to move this transaction forward.  We would welcome the opportunity to review additional information Tenet can provide and are prepared to recognize any additional value it can demonstrate."

In their letter to Smith, Fetter and Kangas said the Tenet board "could not ignore the concerns regarding disclosure and regulatory compliance that we raised in the lawsuit Tenet filed against Community Health on April 11. Since filing that suit, a decision our Board did not take lightly, we have grown even more concerned. Although Community Health characterized our claims as "baseless" in its press release of April 11, Community Health subsequently disclosed that the Office of the Inspector General of the U.S. Department of Health and Human Services issued a subpoena in March 2011, and that this subpoena was similar in scope to one previously issued by the Attorney General of the State of Texas in November 2010."

Fetter and Kangas also reiterated what they called their "serious concerns about Community Health's ability to consummate the current proposal, let alone a proposal at a value our Board would consider as a basis for entering into discussions."