Team Health Rejects AmSurg's $5.17 Billion Takeover Offer

  • AmSurg took offer public after meeting between companies
  • Deal would combine staffing, surgical center operations

Team Health Holdings Inc. rejected a $5.17 billion takeover offer from AmSurg Corp. to combine the contract-physician supplier with the surgery center and operations company, saying the proposal was too low.

The unsolicited cash-and-stock proposal would create the fifth-largest U.S. publicly traded health-services company. It values Team Health at $71.47 a share, based on AmSurg’s closing stock price on Monday, AmSurg said in a statement. The offer represents a premium of 36 percent to Team Health shareholders, who would get a cash consideration of $11.49 per share, AmSurg said.

U.S. hospital networks and health insurers are consolidating to gain efficiencies of scale that are rewarded by the Patient Protection and Affordable Care Act, also known as Obamacare. While doctors’ groups have remained relatively small, they can cut costs and build negotiating power through mergers, said Christopher Holden, AmSurg’s chief executive officer.

“Physicians are the least consolidated on that continuum and they have a difficult time keeping up,” he said in a telephone interview. “They tend to get lost and commoditized.”

Team Health, based in Knoxville, Tennessee, provides hospitals with nurses, doctors and other clinical aides. AmSurg helps run clinics and surgery centers, working with physician practices. Together they represent about 1,200 health-care facilities and 20,000 clinical workers, AmSurg said.

The AmSurg bid is “based on insufficient value” and presents risks, Team Health said Tuesday in a statement. Team Health -- which is acquiring another physician group, IPC Healthcare Inc. -- said it has confidence in its current strategic plan.

“We are extremely enthusiastic about our company’s prospects and confident in our ability to grow value for our stockholders,” Michael Snow, Team Health’s CEO, said in an Oct. 15 letter to AmSurg, made public Tuesday. “The integration of IPC is a critical element of our plan and we will not compromise that effort.”

Team Health agrees with AmSurg that physician-services companies are consolidating, and "we can certainly understand why AmSurg would find a combination with TeamHealth appealing in such an environment," Snow said.

Holden and Claire Gulmi, AmSurg’s chief financial officer, pointed to the company’s 2014 acquisition of Sheridan Healthcare, a physician management company, as evidence of the efficiencies that can be achieved. AmSurg projected 2015 earnings before interest, taxes, depreciation and amortization of $195 million from the unit, the executives said, and realized $192 million in the first nine months of the year.

Adding Scale

“If we were to combine, I believe others would follow suit,” Holden said. He said that 95 percent of physician anesthesia practices are small groups of doctors, rather than large medical practices. “Five years from now, will it be 60 percent, 80 percent, now that the pace of consolidation is increasing?”

The companies originally met last month, when AmSurg proposed a deal and was rejected, Holden said. “We are disappointed to learn that you chose not to engage with us based on what appears to be a very cursory analysis of our specific proposal and key deal terms,” Holden said in a letter to Team Health’s board that was made public Tuesday.

The deal would create $200 million to $290 million overlapping cost savings, according to Nashville, Tennessee-based AmSurg. AmSurg would also support Team Health’s $1.6 billion acquisition of IPC, announced in August, to add medical staffing operations. That deal hasn’t yet closed.

Team Health shares rose 14 percent to $60.10 at 11:56 a.m. in New York trading . The stock had fallen 8.7 percent this year as of Monday’s close. AmSurg shares fell 5.9 percent to $73.50.

The offer was first reported by the Wall Street Journal.

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