2 Firms OK Merger to Form World’s Largest Health Care Company

American Hospital Supply Corp. and Hospital Corp. of America on Sunday announced a definitive merger agreement that would create the world’s largest health care company.

The announcement was made by Karl D. Bays, chairman and chief executive of American, and Thomas F. Frist Jr., president and chief executive of HCA.

The agreement was unanimously approved Saturday by directors of both corporations. After the merger is completed, both American and HCA will continue operations as separate units, the firms said.

The exchange rate in the merger was set at one share of American’s stock for three-quarters of a share in the combined company. HCA shareholders will receive one share in the combined company for each share they currently hold.

After the merger, which is expected to be tax-free to shareholders, there will be about 145 million shares outstanding with a value, based on current market prices, of $6.6 billion.

In trading Friday on the New York Stock Exchange, American Hospital Supply shares closed at $37, up 75 cents, on a volume of 626,400 shares. HCA stock closed unchanged at $46.50 per share on a volume of 137,400 shares.

Headquarters in Nashville

Bays is to serve as chairman of the combined firm’s board and executive committee, and Frist will be president and chief executive, the companies said. The new firm will be headquartered in Nashville, Tenn. American’s operations will continue to be headquartered in Evanston, Ill., and HCA will maintain its headquarters in Nashville.

“A new health care environment demands new responses,” Bays said. “This merger represents a positive, bold, innovative move by two leading companies to meet demands for improved quality and efficiency in health care.”

Frist added that the merger “benefits all users of our products and services--patients, physicians, customers, hospitals, employers and insurers. This is not just a hospital company plus a hospital supply company, but rather a fully integrated health care company.”

According to Bays, “our new company will be able to deliver more cost-effective health care to the benefit of hospitals and patients.”

Terms of the agreement require approval by American’s and HCA’s shareholders. Shareholder meetings of both firms are expected to be held in June.

Defense Against ‘3rd Parties’

In an apparent defense against outside firms, according to a statement released by the two companies, “in the event that a third party acquires or offers to acquire 20% or more of the shares of either company, an exchange of shares would take place. HCA would issue approximately 25% of its then-outstanding shares to American and American would issue approximately 35% of its then-outstanding shares to HCA.

“If that exchange takes place, each company has agreed--among other things--to vote the other’s shares for approval of the merger. Such an exchange would not be subject to approval by the companies’ shareholders.”

HCA and its affiliates own or manage more than 420 hospitals and other health facilities in the United States and seven other countries. In addition, HCA is extensively involved in medical education, research, pre-paid health insurance plans and physicians’ services.

American is a worldwide manufacturer and distributor of health care products. It services hospitals, laboratories, medical specialists and other health care providers as well as patients at home.

Combined 1984 assets of the two firms were $7 billion, revenue was $7.6 billion, net earnings were $535 million and debt-to-equity ratio was 0.587.