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Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Behind $21 Billion Buyout of HCA Lies a High-Stakes Bet on Growth

  • Summary: Yesterday, HCA Inc. (NYSE:HCA), the nation's largest hospital chain, confirmed that it is pursuing a $21 billion bid due to "growth-management" concerns, according to Steve Pagliuca, a managing director at Bain Capital, one of the proposed buyers. Shares of HCA, meanwhile, rose $1.61 to $49.48 in composite NYSE trading yesterday -- short of the $51-a-share being offered in the buyout. Still, the price represented a 6.5% premium to HCA's Friday closing price of $47.87 and an 18% premium to its closing price last Tuesday. HCA will be assuming $11.7 billion in debt and is expected to add $10 billion to $15 billion more in new bonds and loans. As a result, HCA bonds plunged yesterday as investors worried that the risk of a default on debt would rise, as Moody's Investors Service, Standard & Poor's and Fitch Ratings said the deal could result in multiple-notch cuts to HCA's already-junk-status credit rating. S&P already noted in May that HCA's operating margin had declined for the past four quarters due to weak patient volume, growing numbers of uninsured patients and rising costs such as supplies and labor -- all reasons behind the company's decision to pursue the buyout bid in the first place.
  • Comment on related stocks/ETFs: From the outside, HCA seems like a heavily profitable company, with revenue of $24.5 billion and net of $1.42 billion during FY 2005, not to mention more than $3 billion in operating cash. For more on the reasons behind why HCA decided to pursue a buyout offer and the challenges being faced in healthcare and hospital management, see today's piece from Bloomberg.com entitled Frist, Buyout Firms Buy HCA as Hospital Use Declines.
Source: HCA Accepts $21B "Growth-Management" Buyout Offer