Hedge Fund Live's  Instablog

A few months ago, Community Health Systems, now the second-largest public hospital company (first is HCA), made a takeover bid for Tenet Healthcare, another large, national hospital chain, with the prospect of becoming the largest hospital chain in the US.  However, after failed attempts, it looks like Community Health has submitted its final proposal on May 2, and expires May 9.  The deal values Tenet at $7.25 a share, which Tenet believes is significantly undervalued (prominent analysts have estimated a $9-$9.50 per share value).  Tenet is currently trading at $6.27 per share and has shown a 9.5% decline since the offer was made, indicating that traders do not believe this deal will go through.  To further complicate matters, Tenet has filed a $280 million lawsuit against Community Health for over-billing Medicare.  Even though Tenet has expressed it will evaluate the deal, most signs point to having no deal.

Barring a major surprise with Community Health, speculation is growing that HCA and Tenet will be a great match, and HCA will certainly have the resources to facilitate such a deal.  From the competitive side, HCA would help further its foothold as the largest hospital operator in the US, at the same time squashing hopes of Community Health’s pursuit for the position.  Tenet, as another public company, clearly has its shareholders in mind and it is likely HCA would be willing to offer a better deal than Community Health, if it chose to do so.

With Vanguard Health System’s recent announcement of an IPO, Tenet’s negotiating skills may further drive up its price if or when it does get acquired.  If you are bullish on the hospital sector, Tenet will be an interesting company to follow in the next few weeks and months.