Before Vanguard's sale decision, REIT offers and a target of its own

Tenet deal began taking shape after February meeting; golden parachutes to top $40M

Vanguard Health Systems directors considered spinning out and selling the hospital operator's real estate assets as well as buying a rival chain before voting to sell the company to Tenet Healthcare.

Those details and more are included in a recent Securities and Exchange Commission filing by Vanguard that outlines the terms of its $4.3 billion deal to sell to Texas-based Tenet for $21 per share and includes a timeline of how the vote came to be. Among the interesting wrinkles in the filing:

• Vanguard's first real discussion about its strategic future came in early 2012, when its leaders talked about combining the company with "a large predominately non-profit health system." But those talks were put on hold in May of last year, when the nonprofit group said they needed to focus on other priorities for a while. The so-called Bidder A and Vanguard reopened merger talks last December but pulled out of the running in April.

• By then, Vanguard's board had — with the help of JPMorgan Investment bankers and Skadden Arps Slate Meagher & Flom — reached out to a number of other entities, including two real estate investment trusts. Those entities in mid-April submitted bids to buy Vanguard's various real estate holdings, splitting them from its medical operations, for $17.32 and $16.31 per share. Those numbers disappointed Vanguard's directors, executives and bankers, who also had reservations about how such a REIT arrangement might restrict Vanguard's operational options.

• Tenet CEO Trevor Fetter first surfaced in earnest in late February, when he met with some Vanguard executives in Dallas, Tenet's hometown. Two weeks later, the parties signed a non-disclosure statement.

By the second week of April, Fetter told Vanguard Vice Chairman Keith Pitts he wanted to move forward and figured he'd be able ballpark a price by early to mid-May. A bid for $18 to $20 came on May 6. A month later, Fetter raised Tenet's offer to $20 but was told the board wanted more money — and soon, because...

• Concurrent with their REIT and Tenet talks, Vanguard's representatives also were weighing whether to go it alone and continue down the acquisition path they had followed in the years prior. In late March, they had first met with representatives of another hospital company. The JPMorgan bankers estimated Vanguard shares — then trading around $15 — would be worth between $21 and $27 if the company decided to buy its peer.

The so-called Target A isn't identified in any way, but the proxy does say that Vanguard board members were concerned about the potential to have to divest some assets, suggesting Target A does a fair amount of business in one or more of Vanguard's main markets — Phoenix, Detroit, Chicago, San Antonio and suburban Boston.

• Later in June, Tenet stepped up its offer to $21 but Fetter told Vanguard Chairman and CEO Charlie Martin he needed to seal the deal by June 24, the day the deal was eventually announced.

• The top four Vanguard execs — Martin, Pitts, CFO Phil Roe and Chief Transformation Officer Brad Perkins, are in line to receive special compensation packages worth about $44 million. Half of those golden parachute payments are due to go to Martin — who will be paid more than $86 million for his Vanguard shares and options — with Perkins set to get $11.7 million and Roe and Pitts each in line for about $8.5 million.