Community Health Said to Explore Options Including Sale

Updated on
  • Hospital operator’s shares have plunged 75% in the past year
  • For-profit company posted loss of $1.43 billion in 2nd quarter

Community Health Systems Inc., the troubled hospital operator, is exploring a possible sale of its business, people with knowledge of the matter said.

The Franklin, Tennessee-based company is working with advisers to consider options, although the deliberations are at an early stage and there is no certainty of a deal, the people said, asking not to be identified because the information is private.

The shares surged 16 percent to $12.27 at the close in New York, giving Community Health a market value of $1.4 billion and an enterprise value, including long-term debt, of about $17 billion. Before Friday’s move, the shares had plunged 75 percent in the past 12 months. The high level of debt, combined with a raft of operational issues facing the company, could limit the number of potential buyers, one of the people said.

Tomi Galin, a Community Health spokesman, declined to comment.

Sheryl Skolnick, an analyst with Mizuho Securities, said Community Health might have trouble finding a buyer in the two other biggest publicly traded hospital chains, HCA Holdings Inc. and Tenet Healthcare Corp.

She called a deal with HCA “highly unlikely,” and said Community Health’s debt load would be a major obstacle. Both would be unlikely to use stock for the purchase, which would be necessary, she said.

Tough Deal

“Tenet would have to use stock (and put its stock at risk) and we doubt that its new board would risk the new strategy for such a disruptive transaction,” Skolnick said Friday in a note to clients. “We don’t think it gets sold in whole, but it might get sold in part.”

Tenet spokesman Charles Nicolas declined to comment, saying the company doesn’t speculate on acquisitions or divestitures. A representative for HCA didn’t immediately respond to requests for comment.

Last month, Community Health posted a second-quarter net loss of $1.43 billion after writing down the value of its hospital assets. The company said at the time that it had overestimated the long-term fair value of its hospitals.

While the Affordable Care Act has expanded health coverage, its effects have waned for hospitals over the past year, and Community Health spun off 38 hospitals as Quorum Health Corp. in April as it works to improve financial performance. The company has said it’s considering selling more.

Operating revenue in the second quarter totaled $4.59 billion, beating the average of analysts’ estimates compiled by Bloomberg of $4.54 billion.

(Updates with Tenet comment in eighth paragraph.)
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