Thought Community Health Systems' deal to buy rival Health Management Associates was going to be a cakewalk because HMA activist Glenview Capital Management would, as the largest investor in CHS, bless the deal and book its profits? Think again.
New York-based Glenview on Tuesday afternoon declined to rubber stamp CHS' buyout plan and said it will continue to press for a complete overhaul of the HMA board as a path to increasing the performance and profitability of that company. The hedge fund's representatives said the $7.6 billion buyout announced by CHS this morning "establishes an important floor value for HMA shareholders to evaluate."
"This is an important step forward in the process, but more work is necessary to reach HMA shareholders' destination," Glenview said in a statement. "As the sitting board has entered into a sale ageement concurrent with management vacancy, disappointing results and a reduced outlook, it is difficult to assess whether the value offered in the Community Proposal represents full and fair value or represents the price offered by an opportunistic acquirer to a distressed seller."
HMA shares (Ticker: HMA) fell more than 10 percent after the CHS agreement was announced. Heading into the last half hour of trading, they were changing hands at about $13.30, about 3 percent below CHS's offer — which was technically a takeunder based on HMA's Monday closing price. Shares of CHS (Ticker: CYH) were down almost 4 percent on the day to $45.44.
In their statement, Glenview managers classified the CHS bid as an "alternative for shareholders to consider." (CHS needs 70 percent of HMA's investors to approve the deal.) They also said they are moving ahead with their plan to replace the sitting HMA directors so that they can ensure the Florida-based company retains its value and so that they can "investigate and present any alternative proposals to create and enhance value beyond the floor established" by CHS' plan. (Read the full statement here.)
It's hard to say if Glenview would really block CHS's approaches, but it doesn't hurt to try to squeeze out a deal that's even marginally better. Even if CHS were to raise its bid by just 5 percent, Glenview would book another $26 million in profits on its investment given its 14.6 percent stake in HMA.