On CNBC this morning, business journalist David Faber said executives at Franklin, Tenn.-based Community Health Systems and Naples, Fla.-based Health Management Associates are in merger talks, and the two parties may "announce something as soon as this week."
If a deal were to happen, Mr. Faber said it would be a "below-market" sale, meaning CHS would buy Health Management for less than its current stock price, which was hovering around $15 per share today. Any sale would "largely be in cash," according to the report. This could be the second major transaction in the industry, as Dallas-based Tenet Healthcare Corp. bought Nashville, Tenn.-based Vanguard Health Systems in June for $4.3 billion, $1.8 billion of that total in cash.
Rumors of a Health Management takeover appeared earlier this month in a Reuters report, in which CHS was named the likely suitor.
However, there is a major obstacle in any potential deal, Mr. Faber reported. According to Health Management's charter, 70 percent of shareholders must approve a sale. "That's a very high threshold and very much unclear how you could get 70 percent of shareholders" to agree to a below-market deal, Mr. Faber said.
Health Management has been a target in the for-profit hospital industry since May, when its battle with Glenview Capital Management began. Glenview is a New York City-based hedge fund, run by billionaire Larry Robbins, and it is the largest shareholder of Health Management, owning 14.6 percent of its shares. Glenview, which also owns roughly 9.4 percent of CHS, wants to remove and replace Health Management's board with eight new people. Last week, Glenview ripped into Health Management's performance and executive behavior, saying the company needs new leadership to rectify "misaligned" priorities.
"It appears to me that HMA and its current board and management are out of bullets," Mr. Faber said in his report regarding a potential sale. "They're trying to figure out what to do to fend off Larry Robbins and Glenview as they continue to line up consents to replace that board of directors."
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