Merger Buzz Drives Up Tenet, Columbia Stocks
Wall Street embraced Tenet Healthcare Corp. and Columbia/HCA Healthcare Corp. on Wednesday, sending shares sharply higher amid reports that the nation’s two biggest hospital chains are discussing a merger.
Executives from both companies declined to comment on any talks, first reported by the Wall Street Journal. But knowledgeable industry sources said the two firms, which have held preliminary talks in the past, have resumed discussions as Columbia faces a widening federal investigation into suspected Medicare fraud.
Analysts said any such deal would face significant obstacles, almost certain to include a federal antitrust review and, possibly, opposition from law enforcement agencies probing Nashville-based Columbia.
As the government investigation expanded after raids on 35 Columbia facilities in six states last week, the hospital giant has faced growing pressure from investors and criticism that the company has re
sponded inadequately to the crisis.
The Tennessean newspaper in Nashville, quoting “knowledgeable” sources, reported Wednesday that company directors last weekend discussed whether Columbia’s hard-driving chairman, Richard Scott, should be asked to step down.
Columbia shares jumped $3.25 to $36.31 on the New York Stock Exchange. Tenet shares rose $2.63 to $30.13, also on the NYSE.
Industry observers speculated that Columbia may be looking to Santa Barbara-based Tenet and its chairman, Jeffrey C. Barbakow, to help rescue the company from its predicament. Who better to help currently beleaguered Columbia than formerly beleaguered Tenet?
Three years ago, Tenet, then named National Medical Enterprises, was the target of a massive federal criminal fraud investigation into its former psychiatric hospital division. Barbakow, a former investment banker brought in to resolve the government probe, helped engineer a settlement in which Tenet paid a $380-million fine.
“Jeff has worked through similar kinds of problems, much messier situations,” said Lori Price, health-care analyst with Oppenheimer & Co. in New York. “Tenet, having already done this before, perhaps could get to a quicker resolution” with the U.S. Justice Department and other federal and state agencies probing Columbia.
Several observers said Barbakow’s knowledge of federal government procedures and his reputation for conciliation are in contrast with Columbia’s Scott, an aggressive entrepreneur whose efforts to buy up hospitals across the country have led to frequent, acrimonious run-ins with regulators and local authorities.
“Scott is reportedly a very contentious fellow and may be trying to fight this out,” said David Olson, a former public relations executive with National Medical during its psychiatric hospital scandal. “National Medical tried to fight it out, and that didn’t work.”
In National Medical’s case, company founders Richard Eamer and Leonard Cohen were forced out, and Barbakow was hired to clean things up.
But several analysts were skeptical of the notion that Columbia may be seeking to resolve its troubles through a merger, presumably one in which Tenet management would be in charge.
“There is little, if any, possibility that Columbia’s board would approve such a strategy in the middle of this investigation,” analyst Jeffrey Villwock of Robinson-Humphrey in Atlanta said in an investment advisory Wednesday.
Other analysts said a Columbia-Tenet merger announcement would be premature because it appears that the government investigation is not far enough along to warrant settlement talks. Columbia’s Scott recently said that he believed that the investigation--already one of the largest in U.S. history--could take two years to resolve.
A marriage of Columbia, the nation’s largest health-care company, and Tenet would create a chain of 470 hospitals, 650 home-health facilities, and other medical operations, mainly in the United States.
A merger would almost certainly trigger a federal antitrust review because of a concentration of hospitals in southeast Florida, New Orleans and Texas, analysts said. Overall, a merger would give the combined firm a less-than-10% share of the nation’s hospitals.
The two companies “have concentrated positions in several markets, notably Florida, which could make a combination difficult to achieve,” Merrill Lynch analyst Margo L. Vignola said Wednesday. “We do not believe that a merger between these two is likely at this time.”
Federal agents last week seized records relating to laboratory billing and home health-care operations at Columbia/HCA facilities in Florida, Texas, Tennessee, North Carolina, Oklahoma and Utah, the company said. Earlier, agents had seized records at a Columbia hospital in El Paso.
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