The bull-case for CYH remains grounded in the potential takeout of THC and the significant EPS power generated from the deal ($4.50+ EPS). We think as long as the market continues to view this deal with a high probability of success, our view is that CYH shares can likely move easily toward $45 (10x newco EPS).
The lawsuit names former Florida Gov. Jeb Bush as the lead defendant along with nine other Tenet board members. The suit, filed by a union pension fund, claims Bush and Tenet's other board members fought off a merger offer from Community Health Services by changing company bylaws. The suit claims the board members adopted a poison pill takeover defense under the pretext of protecting an alleged "tax asset" — an operating loss — to entrench themselves in their positions at shareholders' expense.Community Health Systems (Ticker: CYH) made a $7.3 billion unsolicited bid for Tenet in November. Tenet (Ticker: THC) rebuffed the company and altered its bylaws and shareholder rights agreement to try and prevent a hostile takeover.
Dolliver: We look at Tenet, just to pick a name that’s focused on quality… Laughter, rumbling from the crowd Dolliver: Tenet had, they promoted Centers of Excellence and did all these quality things with payers... Smith (interrupting): They did? Dolliver: But they’ll tell you… Smith (interrupting): Did it help their stock price any?Dolliver stumbled for a minute, then said Tenet’s volume growth improved somewhat, but that the company will tell you they didn’t get the bang for their buck on the program. And with that, the conversation moved on, until Smith circled back: "That company you were mentioning earlier has said a lot about taking market share because of their demonstrated quality, but they've had 26 straight quarters of reducing commercial enrollment. I'm not sure that's my definition of taking market share." Later in the discussion, Smith prompted analysts to talk about their favorite stocks for the year and any “events that could happen in 2011 that could enhance the industry and bring up the multiples and all of that.” Only Frank Morgan of RBC Capital took the bait, saying if “a particular company here in Nashville got interested in a company in, let’s say Texas and actually completed a transaction,” that, coupled HCA going public, could give the industry a big lift. Finally, Smith closed by telling the crowd: “We will prevail.”
We believe that Community Health has nominated its slate of director candidates only to advance its goal of acquiring Tenet at an inadequate price. We are confident that the continued execution of our strategic plan will deliver significantly more value to our stockholders than Community Health’s inadequate proposal. Under the Board’s leadership, Tenet has delivered strong growth for more than five years, including solid performance in fiscal year 2010. Tenet continues to expect significant growth from a combination of acute care revenues, our expanding outpatient business, offering healthcare services to other hospitals, improved cost efficiencies, expanded margins and strategic investments. We look forward to building on our momentum in the year ahead. We firmly believe that Tenet’s stockholders – not Community Health – deserve to benefit from this growth. Tenet’s Board and management team will continue to act in the best interests of all its stockholders, and remain focused on executing our core business plan and capitalizing on Tenet’s leading position in healthcare services.