Published April 18, 2011
NEW YORK (Reuters) - Community Health Systems Inc <CYH.N> is converting its $3.3 billion bid for Tenet Healthcare Corp <THC.N> to all cash, the hospital operator said, sweetening the offer after questions about its billing practices hit its shares.
Community, whose shares fell 13 percent, said on Monday that it was bidding $6 a share in cash for Tenet. Its previous offer, which Tenet had rejected as too low, was for $5 a share in cash and $1 in Community Health stock.
Tenet said in a statement that it would review the revised proposal.
Community Health's stock has dropped sharply in the past week after Tenet accused the company of admitting patients for needless stays and bilking the U.S. government and private insurers.
In an unusual lunge at a hostile suitor in a takeover battle, Tenet filed the lawsuit on April 11 accusing Community Health of admitting up to 82,000 patients between 2006 and 2009 who would have been sent home by other hospitals.
Hitting the stock further, the U.S. government has subpoenaed Community Health in connection with an investigation of possible improper claims submitted to Medicare and Medicaid.
Community Health Chief Executive Officer Wayne Smith said in a statement that converting the offer to all cash "underscores our commitment to completing this transaction and renders Tenet's irresponsible and inaccurate lawsuit irrelevant to our offer.
"We are confident that our business practices are appropriate, and we will respond in detail to Tenet's claims in due course," Smith said.
In a research note, analysts at Susquehanna said they did not believe Community Health's earnings power would change materially even if Tenet's allegations were proved to be true.
"We estimate that Community Health's earnings power in the worst case would be impaired by approximately $60 million-$70 million on an annual run-rate basis," Susquehanna said.
Susquehanna added that investors had been asking over the weekend whether Community Health would be able to finance its bid now.
Community Health said its financial advisors, Credit Suisse <CSGN.VX> and Goldman Sachs <GS.N>, were highly confident that the company can obtain financing for the all-cash offer for Tenet in the capital markets.
Analysts were surprised that Community Health had not mentioned the subpoena earlier.
"Amazingly, (Community Health) management spoke with shareholders and analysts during all of last week about the (Tenet) allegations without disclosing it was already under investigation for something potentially similar," analysts at Leerink Swann said in a research note.
Oppenheimer analysts said that "not only does the subpoena add the risk of the government potentially finding wrongdoing -- it also raises questions regarding management's credibility as they hid this vital piece of information from investors".
In addition to the takeover bid, Community Health has also said it intends to present a full slate of 10 independent director nominees for election to Tenet's board at its 2011 annual meeting.
That meeting has been delayed until November 3, and the entire board is up for reelection, Community Health said.
Community Health also said on Monday that it would release its first-quarter earnings on April 27 and discuss Tenet's allegations on a conference call on the following day.
At Friday's close, Community Health shares were down 21 percent from their closing price before the lawsuit was filed.
The stock was down 13 percent at $27.55 in trading before the market opened on Monday, while Tenet fell 2.5 percent to
(Reporting by Megan Davies and Lewis Krauskopf; Editing by Derek Caney and Lisa Von Ahn)