Tenet buying Vanguard in $4B+ deal

Martin, Pitts taking board, management roles at former CHS target

The board of Vanguard Health Systems has voted to sell the Burton Hills-based hospital chain to Tenet Healthcare, the company that two years ago fought off a buyout bid from Community Health Systems.

Dallas-based Tenet has agreed to pay $1.8 billion in cash for Vanguard's shares and take on its $2.5 billion of debt. Per share, Vanguard investors will receive $21, a 70 percent premium to their Friday closing price of $12.37. Vanguard shares (Ticker: VHS), which had slid from their March highs above $17 and been flat year to date, were changing hands around $20.50 in pre-market trading. The stock had lost ground after Arizona officials curtailed the company's Medicaid contract there and again when the company reported so-so third-quarter results.

The deal, which will be funded by Bank of America Merrill Lynch, is expected to be finalized by the end of the year. Vanguard Chairman and CEO Charlie Martin, who founded the company in 1997 with backing from Morgan Stanley Capital Partners, will then join Tenet’s board of directors. Keith Pitts, Vanguard’s vice chairman, will join the Tenet leadership team in the same role, as will Ed Kangas, Vanguard's non-executive chairman.

"This combination will establish a much larger, stronger, and flexible industry-leading healthcare organization," said Martin. "The cultures of our two companies are a great fit and we share a vision of creating a better health and healthcare system that will lead us through the coming changes. [...] Together, we now have the scale and strength to achieve the vision we have pursued in parallel."

The Tenet-Vanguard combination will run 79 hospital and 157 outpatient centers and be the No. 1 or 2 player in 19 markets around the country. The deal will add to Tenet's Texas operations and take it into New England, Chicago, Detroit and Phoenix for the first time. (See map below.)

Tenet President and CEO Trevor Fetter said his team expects to cut between $100 million and $200 million from the company's combined cost bases. Layoffs are expected to provide the most immediate savings with revenue cycle and supply chain improvements also contributing in the next 24 months. Tenet also plans to refinance Vanguard's debt, most of which is carrying interest rates of 7.75 percent or higher.