NEWS ANALYSIS : NME’s Hospital Talks May Attract Some Unintended Bidders Too

National Medical Enterprises may have set in motion a blockbuster hospital industry merger, but the Santa Monica firm may not be in control when the pieces fall into place.

That is one possible scenario that could result from NME’s negotiations to become the nation’s second-largest operator of acute care hospitals by acquiring Nashville-based HealthTrust Inc. and American Medical Holdings of Dallas, industry executives and analysts said Wednesday.

The possibility of such a powerful merger may attract competing bidders, analysts said, including action by Columbia/HCA Healthcare Corp., currently the nation’s largest hospital chain. If NME were to complete the deal, it would create the only U.S. health-care firm whose size would rival Columbia/HCA, with $10 billion in revenue and about 200 hospitals.

“I can’t believe that Columbia/HCA is not going to try to botch this deal up,” said an executive at a large hospital chain not involved in the negotiations, who did not want to be named. Analysts also speculated that another hospital chain, such as Nashville-based Ornda HealthCorp., might step in to spoil NME’s three-way deal.

Columbia/HCA could scuttle the deal by offering to buy one or more of the three hospital companies. However, some analysts said Columbia/HCA could be deterred by the task already before it: digesting a flurry of recent acquisitions of hospitals, outpatient clinics and other facilities.

The deal may also be too expensive for Columbia, said Margo Vignola, an analyst at Salomon Bros. “I don’t think Columbia is interested in any one of them at the prices they might want,” she said.

Officials at Columbia/HCA’s headquarters in Louisville, Ky., declined comment.

Even if no competing bids emerge, NME still faces several obstacles in completing the deal, analysts said. HealthTrust, which operates about 118 hospitals, may hold out for a higher offer from NME, analysts said. NME is expected to propose acquiring HealthTrust in a 2-for-1 stock swap that would be valued in excess of $3 billion.

“The transaction is relatively attractive to American Medical and NME, but less attractive to HealthTrust,” said Edwin Gordon, an analyst at Morgan Stanley. “The linchpin to this transaction is HealthTrust. NME will have to come up with more money to do this deal.”

“A deal is going to go down,” said an executive at one hospital chain that has held merger talks with some of the parties. “But NME will definitely have to open up the purse strings and pay more for the companies,” said the executive, who declined to be named.

Other industry executives said NME may have endangered the deal by allowing news of the negotiations to leak out on Tuesday. Some officials of American Medical and HealthTrust blame NME for the disclosure and have said privately that the leak calls into questions NME’s credibility.

Details of the negotiations were originally disclosed in an article in the Wall Street Journal on Tuesday. The newspaper said its information came primarily from copies of different drafts of a speech that had been prepared for NME Chairman Jeffrey Barbakow to deliver at the firm’s annual meeting on Wednesday.

“It’s really a high-stakes gamble for this to get leaked,” said a hospital executive who declined to be named. “It could be a deal buster for someone to, purposefully or inadvertently, leak this information at a fairly critical time.”

Among the rumors circulating at NME’s headquarters in Santa Monica and the other companies is that NME deliberately leaked the documents to the newspaper to propel the negotiations to a conclusion in time for NME’s annual meeting, sources said.

The meeting comes three months after NME paid $380 million to settle federal criminal-fraud charges and pleaded guilty to six counts of paying kickbacks for referrals of Medicare patients.

Sources said there is uneasiness among employees at both American Medical and HealthTrust about being swallowed by NME because of its past troubles. The leak reinforced negative impressions of NME, sources said.

“This keeps that NME taint,” said one of the hospital executives.

Speculation was that Barbakow wanted to have good news for shareholders after the messy federal investigation.

“What Jeff desperately wanted was a howitzer to shoot off at the meeting and what he was going to have instead was a pop gun,” said a source close to NME.

But NME denied that management knew about the leak. “There has been speculation that NME has somehow orchestrated this, and that notion is absolutely untrue,” said Diana Takvam, an NME spokeswoman.

An NME source said the company is considering asking some employees who may have had access to the Barbakow speech to submit to lie detector tests. Takvam declined to comment on that possibility.