Naples-based Health Management Associates announced today it will be acquired by Tennessee-based Community Health Systems Inc.
HMA, which operates the two Physicians Regional hospitals in Collier County, will be acquired for about $7.6 billion, including the assumption of about $3.7 billion of indebtedness.
"I truly believe we have found the right partner, and this transaction will benefit the great communities we serve,'' HMA Chairman William Schoen said during a conference call Tuesday morning with Wall Street analysts.
Schoen said he and Wayne Smith, chairman and chief executive officer of Community Health Systems, began talking about a possible deal in late 2012. During the conference call, Smith said HMA brings a "very attractive portfolio," and a presentation indicated Florida will be one of the merged company's largest markets.
"HMA's geographical footprint is very complimentary to ours,'' Smith said.
Community Health Systems would own or operate 206 hospitals in 29 states with a total bed count of more than 31,000 as a result of the merger. HMA owns 71 hospitals. The transaction is expected to conclude in March 2014, if approved by shareholders.
HMA is under investigation by regulators over its admission practices and is entangled in a takeover attempt by the hedge fund Glenview Capital Management. It's president, Gary D. Newsome, is planning to retire to go on a religious mission in South America.
The merger agreement was unanimously approved by the CHS board of directors. HMA's board also unanimously approved the agreement and recommends that its stockholders approve the merger.
Under the terms of the agreement, CHS will acquire all of the issued and outstanding common stock of HMA for a combination of cash and CHS stock currently valued at $13.78 per HMA share, based on CHS' closing stock price as of July 29, and consisting of $10.50 per share in cash plus 0.06942 of a share of CHS common stock for each HMA share. HMA shareholders will own about 16 percent of the shares of the combined company following the close of the transaction.
In addition to the cash and stock consideration, HMA shareholders would also receive one contingent value right (CVR) for each HMA share they own, which could yield additional cash consideration of up to $1 per share, depending on the outcome of certain matters described in HMA's public filings under the "Legal Proceedings" section.
CHS expects the transaction to have a neutral impact on its earnings per share in the first year following the close of the transaction and also expects the transaction to be significantly accretive to earnings per share thereafter.
"This agreement represents the successful conclusion of the strategic review process that our board of directors commenced at the end of last year, during which we evaluated several alternatives, including remaining independent and potential transactions with other strategic parties," said William J. Schoen, chairman of the board of Health Management Associates. "Our agreement with CHS provides substantial value to our shareholders. The cash and stock consideration represents an 8.3x multiple of trailing cash flow, which is higher than the multiple paid in the most recent industry transaction, and a significant premium to what we believe would be the unaffected trading price of our shares. Shareholders will receive immediate value in cash, as well as CHS stock that will allow them to participate in the future growth of a true industry leader. We are pleased that this combination will create an even stronger organization for the benefit of our patients, physicians, associates and the communities we serve."
The transaction is expected to close by the end of the first quarter of 2014 and is subject to approval by a 70 percent vote of HMA's stockholders, antitrust clearance, receipt of other regulatory approvals, the absence of certain adverse developments, and customary closing conditions. The transaction is not subject to a financing condition. CHS has received financing commitments from BofA Merrill Lynch, Credit Suisse, and certain of their affiliates.
For a History and timeline of the HMA check here.