Triad Hospitals agrees to be sold

Triad Hospitals Inc. has agreed to be bought by Community Health Systems Inc. for $5.1 billion in a deal that would create the biggest publicly traded U.S. hospital chain, the companies said Monday.

Triad shareholders would receive $54 a share, 9.4% more than the stock’s closing price Friday. Community Health also would assume $1.7 billion in debt.

The deal tops a $4.7-billion agreement announced six weeks ago for Triad to be purchased by CCMP Capital Advisors and Goldman Sachs Capital Partners, the private equity arm of Goldman Sachs Group Inc.

Deal making in the hospital sector has been led by private equity groups, which have taken advantage of relatively low valuations and a motivation by management to escape quarterly scrutiny by Wall Street amid a weak operating environment.

The No. 1 U.S. hospital chain, HCA Inc., went private in a $22-billion management-led buyout last year.

Several analysts were surprised by the Triad- Community deal, saying they wanted to see proof of the cost savings that would justify the premium being paid by Community.

“It’s obviously a premium to not just the previous bid but, by my calculations, to the HCA transaction, for what is clearly lower-quality assets,” said Balaji Gandhi, an analyst at Oppenheimer.

Community Health executives said in a conference call that the deal would reduce earnings in 2008, but would probably add value in 2009. It expects $40 million to $50 million in operating cost savings in its first full calendar year. The deal would be entirely financed through debt.

Combined, the firms would rank No. 1 among publicly traded hospital chains, both in revenue and number of hospitals.

Nashville-based Community had revenue of $4.37 billion in 2006. Plano, Texas-based Triad had revenue of $5.54 billion.

Community shares finished down $2.02 at $34.78, and Triad shares rose $2.59 to $51.95. Tenet shares gained 15 cents to $6.50.