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Analysts Boost Tenet's Value Over What Community Health Offered

Following a discussion with the CEO of Tenet Healthcare, some analysts have upgraded Tenet to a substantially higher value than what Community Health System has bid on it in its hostile takeover offer, according to a report by Los Angeles Business.

The reassessment followed a Jan. 11 conference call between analysts and Tenet President and CEO Trevor Fetter. The Raymond James company, one of the analysts, said it now values Tenet $200 million higher than when Community Health made its offer of $6 per share, or $7.3 billion.

In its full report, dated Jan. 12, Raymond James raised its 2011 and 2012 EBITDA estimates for Tenet by +$75 million and +$115 million, respectively.

"On an apples-to-apples basis, we believe that Tenet’s EBITDA in the 2014-2015 time frame is at least $200 million higher than our prior expectations," the advisory firm said.

Raymond James said drivers behind its guidance included:
1. Continued outpatient mergers and acquisitions.
2. Meaningful contribution from the Conifer revenue cycle management.
3. Incremental savings from the Medicare Performance Initiative, which are expected to generate $250 million from 2011-2015
4. Health information technology benefits
5. Operating leverage to rebounding utilization and lower bad debt expense with an economic recovery.
6. An estimated $230 million benefit from healthcare reform laws from 2013-2015, following an initial $90 million in dilution from 2010-2012.

In the conference call with analysts, Mr. Fetter said Tenet's fortunes would be buoyed by entry of the first Baby Boomers into Medicare this year, which would double enrollment in the program from 1.5 percent to more than 3 percent through 2012.

He was also optimistic about planned expansions of private pay and Medicaid populations under healthcare reform in 2014, and said he wasn't concerned about a possible repeal of the law — or, evidently, about a possible Supreme Court rejection of the law's individual mandate to buy insurance. "We believe that the votes to repeal the bill are largely symbolic," he said.

To keep Community Health at bay, Tenet previously adopted a "poison pill" plan, diluting shares bought by any party acquiring 4.9 percent or more of outstanding common stock. Tenet is also postponing its shareholders meeting.

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