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CHS and HMA agree to merger

Moody's has placed CHS on review for a downgrade

Last week Community Health Systems, Inc. (CHS) announced it will be acquiring Health Management Associates (HMA) for approximately $7.6 billion, including HMA’s debt of $3.7 billion.

Once completed, CHS will own and operate approximately 206 hospitals in 29 states with a total bed count of over 31,000.

[See also: Community Health Systems acquires northeast Pennsylvania health system]

“This is the second biggest hospital deal announced this summer,” said antitrust lawyer George Paul of White & Case Antitrust in a written statement about the acquisition. Paul advises healthcare companies. “This deal is part of a growing wave of hospital consolidation, as hospitals seek ways to diversify and lower costs in anticipation of a sea change occurring in the healthcare industry with the implementation of the Affordable Care Act, uncertainty over how states will handle Medicaid coverage and reimbursement, and Medicare changes.”

According to a CHS press release, 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, 2013, 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 approximately 16 percent of the shares of the combined company following the close of the transaction.

Additionally, 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 $1.00 per share.

The merger agreement was unanimously approved by the Board of Directors of CHS, and HMA’s Board of Directors also unanimously approved the agreement and recommends that its stockholders approve the merger.

[See also: HMA acquires controlling interest in three Florida hospitals]

“This compelling transaction provides a strategic opportunity to form a larger company with a diverse portfolio of hospitals that is well positioned to realize the benefits of health care reform and to address the changing dynamics of our industry,” said Wayne T. Smith, chairman, president and CEO of CHS, in a press release.

The transaction is expected to close by the end of the first quarter of 2014 and is subject to approval from stockholders and legal regulations, however it is not subject to a financing condition.

Following the announcement of the acquisition, Moody’s Investors Service placed the ratings of CHS under review for downgrade.

"Community's acquisition of HMA will add scale and strengthen its position in certain geographies while maintaining the company's focus on its core model of operating hospitals in non-urban and mid-sized markets,” said Dean Diaz, a senior vice president at Moody's, in a written statement. “However, leverage will increase and both companies remain subject to the risks associated with ongoing regulatory investigations, a portion of which will be provided for as part of the acquisition agreement."

[See also: Community Health Systems continues to press for Tenet acquisition]

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