Stock Dives as Higher Bidder Fails to Emerge : Hospital Corp. of America Board Backs Buyout
Hospital Corp. of America stock sagged Tuesday in the wake of its approval of a $3.6-billion buyout offer from a management-led group, and analysts say they expect that the company’s new owners will sell off up to $750 million in assets if the deal goes through.
In trading on the New York Stock Exchange, HCA lost $3.625 a share to close at $43, apparently reflecting disappointment that a higher bid did not emerge.
HCA’s board agreed late Monday to sell the hospital management giant for $43 a share in cash and $8 in securities to TF Investments Inc., a company formed by HCA management and headed by HCA Chief Executive Thomas F. Frist Jr. HCA has 71.4 million outstanding common shares.
The deal will be submitted to shareholders of the nation’s largest health-care concern sometime in February, officials said.
HCA said the managers had enough financial backing to complete the deal, with eight lenders putting up $4 billion and investors committing $300 million for an ownership interest.
Analysts said growing difficulties in the hospital business discouraged others from making offers. They cited rising costs, competition and tight federal regulation.
“This is a tricky, controversial industry and obviously that discouraged investors from outside the industry,” said John Hindelong, analyst at Smith Barney, Harris Upham & Co.
Few analysts are bullish on the prospects for the hospital business, which was one of the fastest-growing service industries in the 1970s. Seth Shaw of Prudential-Bache Securities said profit growth will remain in single digits.
“Forty percent of the industry is covered by Medicare, which will continue to squeeze business, and costs in the private sector continues to rise unabated,” said Shaw, a former hospital administrator.
But one securities analyst said selling off some assets will probably be necessary.
Ken Abramowitz of the firm Sanford C. Bernstein & Co. in New York said that he expects management to sell up to $750 million of the company’s $5.2 billion in assets.
“It’s just that in an LBO (leveraged buyout), you don’t have the luxury of keeping non-earning assets,” Abramowitz said.
In a leveraged buyout, the buyers often borrow heavily against the assets of the company, planning to repay the debt either through the company’s earnings or selling assets.
Joyce Albers, an analyst with First Boston in New York, said the company might sell its interest in Equicor, a health plans joint venture. She said managers could also sell their interest in HealthTrust, an employee-owned company in which HCA owns preferred stock and bonds.
Victor L. Campbell, vice president of corporate relations, said it was too early to discuss the possibility of selling divisions of HCA.
HCA operates 79 general hospitals with 18,600 beds, and 51 psychiatric hospitals with 5,400 beds.
