I don’t mind going out on a limb – so some projections regarding Community Health & Tenet. #1 – Tenet is history as a stand alone company. Trading volume Friday was more than half the capitalization of the company. The arbs and hedge funds are loading up in a big way and they will get to vote. Company is gone. #2 – The price is probably in the $7.50-8.00 per share range, but could be higher. The synergies and margin upside is so great in this company that CYH can use more stock and others can use cash to buy Tenet. Tenet has a bloated infrastructure and bloated bureaucracy that can be rationalized. #3 – Other bidders could emerge. Let’s run through the possibilities: HCA – unlikely. They want to go public. If they wanted the company, they could pay as much as CYH, or more since they are private. HMA, UHA & LifePoint – no way. Bill Schoen doesn’t like big transactions at HMA. LifePoint too small. Alan Miller just bought Psyc Solutions and he really prefers the psyc business to the acute care business. Vanguard. I’m certain that Charlie Martin would love to own Tenet. Two ways to …
New Bull Market in Hospitals?
The bull market for hospitals was restarted on Friday. As you probably will recall, I talk a fair amount about the seasonality of the hospital stocks and we are going into the seasonally strong period which lasts through some time in May. The reaction to the Community Health offer to buy Tenet was astounding .. not on the Tenet side but on the CYH side. CYH traded down $1.40/share after the announcement and opened down. Then the stock roared up 13% on the day, trading up $4.25 on the close, over 5 ½ points higher than the low. HMA was up over 4%, Lifepoint over 5%. Some of these gains were probably due to an expectation that a new consolidation phase may have begun, but I think more likely is that the hospital stocks are well under valued relative to historical levels. The 5 major public companies are trading at 7.1x LTM EBITDA and 0.90x revenue. While that’s higher than it has been in the past year, these stocks have historically traded 25% higher. The other positive for 2011 is that this sudden increase in hospital focus should allow HCA to complete its IPO which I think would be very …