The American Federation of Teachers is poking at the planned combination of Community Health Systems and Health Management Associates, saying it feels there are legal, regulatory and governance questions that need to be answered more completely.
Among the things AFT President Randi Weingarten said her group is concerned about is the role of hedge fund Glenview Capital Management, noting the firm's large stake in both CHS and HMA has it thinking about "the true beneficiaries of the proposed transaction, and the extent to which shareholders, employees, and the patients and communities they serve will be made to pay the long-term price for excessive short-term risk-taking by corporate insiders and controlling shareholders."
Weingarten said she is interested in meeting with the CHS board to talk some more about these topics.
In a letter sent Friday, CHS General Counsel Rachel Seifert said Glenview was not at all involved in the M&A talks, that the investor doesn't qualify as a controlling shareholder and that the union's worries are unfounded. No word on that meeting request...
Health Management Associates, the Florida-based hospital chain being acquired by Community Health Systems, says it needs to restate three years worth of federal incentive payments related to its adoption of IT systems after discovering an error in how it certified those systems at 11 of its hospitals. The restatement covers about $31 million — most of which HMA already has repaid the feds — received over two and a half years. The financial fumble should not affect the CHS deal.
HCA Holdings has won the bidding war for 198-bed Citrus Memorial Health System north of Tampa, bidding $140 million and committing to spending another $45 million to spruce up the hospital's operations in the next five years. HCA beat out Tampa General Hospital as well as Health Management Associates and Brentwood-based RegionalCare Hospital Partners.
Marmerstein said HCA plans to turn it around by bringing in services unavailable locally, such as robotic surgery. He also anticipates bolstering services such as inpatient behavioral health. HCA will consider adding new residency programs at Citrus Memorial to train future doctors.
Health Management Associates shareholders hoping to squeeze more money out of Community Health Systems are likely to be disappointed even though hedge fund Glenview Capital now controls the HMA board, writes Bloomberg's Tara Lachapelle. Analysts are increasingly speaking with one voice now that it looks like most hospital companies' third-quarter results will be weaker than initially expected. They say HMA investors — 70 percent of whom need to vote in favor of CHS' $7.4 billion buyout plan — should "take the money and run."
Perhaps aided by this emerging consensus — and the smaller likelihood of needing to up its bid — shares of CHS (Ticker: CYH) are up more than 4 percent today. That said, they're still off more than 20 percent in the past three months.
Investors in hospital companies have cooled their heels in recent weeks after seeing Q2 earnings reports and realizing that weak volume trends look likely to persist. Lewis Krauskopf at Reuters writes that another limiting factor is that emerging consensus that the implementation of health care reform won't bring with it a big and instant bottom-line boost. And things are likely to get bumpy this fall as headlines emerge about the enrollment trends for insurance exchanges.
Gary Lieberman at Wells Fargo Securities is in the camp that thinks Glenview Capital's takeover of the Health Management Associates board of directors may end up adding to Community Health Systems' takeover tab by early next year. Lieberman doesn't think the $7.6 billion deal will get called off, but Glenview will not look at Franklin-based CHS as a white knight as the former board did — even though it owns more than 9 percent of CHS.
Still, there are two things to think about from CHS' end: First, it would be easy to hold firm on the price because HMA's Q2 numbers and outlook were not good. Second, the extra money question could be resolved by a decent rise in CHS shares. The acquisition of HMA includes a $3.28 stock component that is now worth less than $3. But if CHS stock (Ticker: CYH) manages to climb back to its June highs thanks to a better Q3, its offer for HMA might be sweetened just enough to appease Glenview.