Health Management Associates Inc., an operator of 71 hospitals in the U.S., gained 6.2 percent after an analyst’s report said Community Health Systems Inc. may consider buying the company.
Health Management rose 81 cents to $13.79 at 4:15 p.m. in New York trading. Chris Rigg, an analyst with Susquehanna Financial, said today in an investor note that Community Health Systems, the second largest publicly traded U.S. hospital company, was considering “acquiring assets with scale.”
“We believe that implies it would be interested in acquiring HMA in a friendly, non-hostile process,” Rigg said in his report. Community Health Systems wouldn’t comment on Health Management specifically, Rigg said.
Health Management, based in Naples, Florida, was the subject in December of a “60 Minutes” report criticizing its emergency room practices and the company in April reduced the high end of its 2013 earnings forecast because of a decline in admissions. The company on May 28 announced that Gary Newsome will retire as president and chief executive officer on July 31 to serve a mission in South America with the Church of Jesus Christ of Latter-Day Saints.
“This is an easy acquisition, it makes a lot of sense,” Brian Tanquilut, an analyst at Jefferies & Co. in Nashville, Tennessee said in an interview. “There is optimism among investors that a new CEO will bring fresh blood.”
Rigg valued the potential acquisition at 7 to 8 times the forward range of earnings before interest, taxes, depreciation and amortization, suggesting a Health Management purchase price of about $18.50 a share.
MaryAnn Hodge, a spokeswoman for Health Management declined to comment. Community Health didn’t immediately return phone calls seeking comment.
The company received a subpoena April 25 from the Securities and Exchange Commission for documents including records of payments from Medicare and Medicaid, the U.S. health programs for the elderly and poor. The government also asked for data on revenue from privately insured or uninsured patients.
Health Management appears to be on stronger footing now, Tanquilut said. Glenview Capital Management LLC, a hedge fund based in New York, last week reported in regulatory filings that it owns about 14 percent of Health Management, he said, which has buoyed investors who may have been skittish because of the recent problems.
“Glenview is viewed as a very smart hospital investor,” he said. “They own 14 percent of a $2 billion company. What that highlights is that this is a good company and a good value pick, and the sell off on investigations and subpoenas is overdone.”