Analysis: The Glenview-HMA endgame

As investors bid up Florida company, analyst sees CHS best placed to make bid

A New York hedge fund has in the past week rattled the hospital sector by filing papers asking to hike its stake in Health Management Associates, the owner of University Medical Center in Lebanon and 70 other hospitals in 15 states.

The board of Florida-based HMA rapidly responded to the filing by Glenview Capital Management by adopting a poison pill, but investors seemed to think something was in the air and bid up HMA shares. Soon after, the company’s CEO said he would retire early to lead a Mormon mission trip, which really set tongues wagging.

The chatter focuses on two questions: Is HMA now in play? And might one of Middle Tennessee’s large hospital management companies step in with a bid that could reach $4 billion?

Industry experts say Glenview’s move to build its HMA stake beyond 14.6 percent reflects the patient ivesting philosophy of founder Larry Robbins. Glenview’s funds manage about $9.5 billion and have been big buyers of hospital stocks over the past year, betting that health care reform will be a big long-term positive for the sector.

That’s why some observers think HMA’s reaction, and its willingness to enact measures making it financially hurtful for Glenview to acquire HMA shares, was a bit swift.

“HMA saw that Glenview had filed with the SEC in keeping with the requirements of antitrust laws and then they overreacted,’ said Brian Tanquilut, an analyst at the Nashville office of Jefferies & Co.

Robbins stated clearly early this week that he has no interest in acquiring a controlling stake in HMA, but the stock market saw an opening. On Tuesday, shares of HMA (Ticker: HMA) jumped more than 6 percent and other hospital names followed. On that day, Deutsche Bank analyst Darren Lehrich said he could see HMA’s board coming under pressure to make a strategic move at some point. On Friday afternoon, HMA was worth more than $3.5 billion and its shares were changing hands at about $13.60. They ended last week at about $11.

 Adding to the intrigue are Glenview’s sizable stakes in local hospital chains. The firm owns 9 percent of Community Health Systems and almost 7 percent of LifePoint Hospitals and has been steadily adding to those stakes since the end of 2012. Glenview also owns 8.9 million shares of HCA — about 2 percent of the industry leader’s total outstanding stock — but that stake has held steady since the end of last year.

So it appears a number of shareholders have looked at those cross-holdings and become restless. And acquisitions are often the logical next step when that happens — especially in the health care industry, where size equals protection and a modicum of stability in a legislative environment that is not often stable.

Maybe Robbins will force the issue and bring CHS, LifePoint or others to the table for an industry mega-play?

“I just don’t see it,” Tanquilut said. “Glenview is a respected value and growth investor and moves like these aren’t in keeping with its platform.”

By now, though, the matter may be beyond Glenview’s control. In a note to clients Friday, Susquehanna Financial analyst Chris Rigg said CHS is best placed to snap up HMA. And the market seemed to bless such a plan by bidding up CHS shares (Ticker: CYH) by about 4 percent for the second day in a row. The company’s currency has never been worth more.

CHS CFO Larry Cash on Thursday didn’t do anything Thursday to quiet down any M&A chatter. At a Deutsche-sponsored investor conference in Boston, he said the Franklin-based company is still in the market for friendly deals — unlike its hostile 2011 bid for Tenet Healthcare — that are “synergistic to us and in markets similar to our markets.”

“We’ve often said that after doing Triad, we’d open to doing that again,” Cash said. “The last one we tried didn’t turn out well but that would not prohibit us from trying to do something in a friendly fashion if that became available.”

Calls to Glenview and LifePoint were not returned by midday Friday. Tomi Galin, head of public relations for CHS, was contacted but could not respond prior to publication.

How things proceed from here is way up in the air. Rigg said he doesn’t expect a move by HMA soon and much will depend on how the board thinks about replacing departing CEO Gary Newsome. But if candidates for that job decide that the shadow of possible suitors looms too large, HMA directors may have little choice but to call in the investment bankers.