Health Management Associates Inc (NYSE:HMA) associating itself to Community Health
Community Health Systems Inc, the U.S. hospital chain announced that it has reached a deal to acquire the much smaller Health Management Associates Inc (NYSE:HMA) for $3.9B. However, the company almost immediately faced strong opposition over the price from investor Glenview Capital Management, its majority investor. The acquisition may hinge on how the shareholders respond. Glenview Capital Management has a majority stake in both the companies and has been egging the company to have the board replaced.
Both the companies said that the price of $10.50 in cash as well as 0.06942 Community share for every HMA share values the latter at $13.78/share which is a 7.6 percent discount of Monday’s $14.92 closing price. However, analysts have averred that this price is far above the price at which HMA’s shares could have been trading after the proxy fight and months of deal speculation.
Change of board
On Tuesday, Glenview said that it plans on continuing with its efforts of bringing in a new board at HMA. In addition, the firm said that it is not easy to assess whether the terms for the deal were fair. This merger will bring together 2 companies that have been facing very similar regulatory and business challenges. This week, both companies reported earnings that were way below analyst expectations. This was attributed to dropping patient volumes at the rural hospitals. There has also been continuing scrutiny from government agencies into various operational aspects.
Via this merger, these two companies will create the largest hospital company in the U.S in terms of the number of hospitals. They will have 206 hospitals across most of the United States. It will also be the No 2 operator in terms of revenue with around $18.9B. The health law will be taking fuller effect in 2014 and the aim of industry consolidation is to permit economies of scale leverage it to their benefit. All hospitals are hoping that there will be a flood of newly-insured patients, but they are also expecting a cutback in government reimbursement.