Tenet & Community Health

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 do the transaction.  First, use Blackstone to buy Tenet for cash.   Second, be the White Knight to thwart the CYH deal, merging the two with Charlie Martin as CEO.  Tenet shareholder’s probably wouldn’t like this second alternative unless Blackstone used new equity to pay a big dividend (like the $5 in cash CYH is offering) to Tenet shareholders funded in some part with equity.  At the end of the transaction, Vanguard would be public and Tenet would become Vanguard.  Charlie would LOVE the fact that he bought the company that bought OrNda.

Iasis.  Could do a similar deal as laid out above for Vanguard.  Problem for them is they don’t have the bench strength that Vanguard has and there has been a very recent change in CEO, COO and CFO.  TPG would probably prefer to get the new C level execs fully up to speed before taking on a company that is several times their size.

Private equity.  Trevor Fetter, if he really believes his press releases (and surprisingly he generally does), could find a deep pocketed private equity sponsor to take the company private.  There are only a couple of sponsors with deep enough pockets, but a club deal that included Welsh Carson, KKR, JLL and others might be able to get a deal done.

While Community Health is certainly in the drivers seat, it is NOT a slam dunk that they ultimately win Tenet.  One caution for the CYH stock.  If they don’t win, stock goes down.

One of the interesting aspects of this offer is that Wayne Smith has made it clear that CYH will go hostile if it needs to in order to get a deal done.  Not many hostile deals done anymore.

I bought Tenet at the opening on Friday.  I expect to receive something at or above $7.50 per share.  I expect this will take a month or more to play out.  Should be fun.  Only wish I was advising a player.