Community Health Drops $7.3 Billion Bid for Tenet After Third Rejection

Community Health Systems Inc. (CYH) dropped its $7.3 billion bid to buy Tenet Healthcare Corp. (THC) and create the largest U.S. hospital company after Tenet repeatedly rejected the offer.

Community Health also is withdrawing its slate of nominees for Tenet’s board of directors, the Franklin, Tennessee-based company said yesterday in a statement. Community Health, the second-largest U.S. hospital operator, said on Jan. 14 it would nominate 10 directors to replace Tenet’s current board.

Tenet’s refusal earlier yesterday to negotiate is the third time its board rebuffed Community Health, turning down unsolicited bids in December for $6 a share in cash and stock and an all-cash offer in April. On May 2, Community Health raised its “best and final” offer 21 percent to $7.25 a share and said it would walk away from its effort if Tenet failed to begin “good-faith discussions.”

“Investors are back to focusing on the fundamentals” of Tenet,” said Art Henderson, an analyst at Jefferies & Co. in Nashville, Tennessee, who places a value of $9 to $9.50 on Tenet’s shares. “If Tenet can execute as it has suggested it can in presentations, then I think we will see the stock move meaningfully higher.”

Tenet rose 11 cents, or 1.7 percent, to $6.63 at 4:01 p.m. in New York Stock Exchange composite trading. Community Health fell 18 cents to $30.90.

Potential Suitor

Tenet’s managers would consider a bid from a suitor willing to “put an offer on the table consistent with the way they see the valuation,” Henderson said in a telephone interview. “They’re absolutely open to talking, but they’re not shopping the company,” he said. “They’re looking to get back to business.”

Tenet has said since December that the Community Health offers undervalued the company, and analysts have told Bloomberg that Tenet should be trading at more than $9 a share.

“We continue to believe that the execution of Tenet’s current business strategy will deliver greater value than Community Health’s inadequate proposal and we are not willing to enter into discussions based on many factors, including a grossly inadequate offer,” Tenet’s chief executive officer, Trevor Fetter, said in the statement.

Tenet’s board authorized as much as $400 million in share repurchases, according to the statement. The stock will be bought “at times and amounts based on market conditions and other factors,” Tenet said.

Subpoenas

Last month, Tenet filed a lawsuit accusing Community Health of defrauding Medicare, the federal health insurance program, and said legal troubles could make it hard to finance the acquisition. Community Health has also been subpoenaed by federal investigators for the Department of Health and Human Services and the Texas Attorney General’s office, asking for documents related to Medicare and the joint state-federal Medicaid program for the poor.

Community health shareholders, including union-backed CtW Investment Group, are looking to unseat several board members including Larry Cash, the company’s chief financial officer.

“There’s a lot that’s happened here in the past month that Community is going to have to deal with,” Henderson said.

Brooke Gordon, a spokeswoman for Community Health, declined to comment beyond the company’s statement.

Tenet owns 49 hospitals in 11 states. Community Health owns, operates or leases 130 hospitals. HCA Holdings Inc., based in Nashville, Tennessee, is the largest U.S. hospital company.

To contact the reporters on this story: Pat Wechsler in New York pwechsler@bloomberg.net; Alex Nussbaum in New York anussbaum1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net

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