So far in 2013, the rate of mergers, acquisitions and general transactions in the hospital industry has continued where the previous half-decade left off. However, yesterday's announcement that Dallas-based Tenet Healthcare Corp. will purchase Nashville, Tenn.-based Vanguard Health Systems is the biggest deal so far this year.
Tenet will acquire Vanguard for $1.8 billion in cash and will assume Vanguard's $2.5 billion debt, creating a total transaction valued at $4.3 billion. The federal government still must weigh in on the deal to ensure antitrust enforcement, but if approved, Tenet will become the third-largest for-profit hospital operator in the country in terms of hospitals owned. Tenet will own and operate 79 hospitals and many more ambulatory surgery centers, putting it behind only Nashville, Tenn.-based Hospital Corp. of America and Franklin, Tenn.-based Community Health Systems.
The deal, somewhat of a "surprise" to many financial analysts, is expected to make ripples throughout the healthcare industry. It could also spark competitive bidding ventures, such as health IT companies vying for the new company's business.
Tenet will gain ground into new markets it had not previously had, like Chicago, Detroit and San Antonio. In an interview with CNBC, Tenet President and CEO Trevor Fetter said the company's revenue in Texas alone, where roughly 30 percent of people are uninsured, should double because of the deal. Tenet is banking on the Patient Protection and Affordable Care Act to help insure many of those uninsured, who would become paying patients at hospitals through expanded insurance options.
Mr. Fetter also told CNBC that Vanguard worked well with Tenet's strategy, which is to expand its acute-care business. He said Vanguard has established many positive working relationships with nonprofit hospitals and health systems, like Tufts Medical Center in Boston, which will help the system grow further.
"This is the first big acquisition we've done in a very long time in acute-care hospitals, but it will not be the last," Mr. Fetter told CNBC. "I look forward to an expanded acquisition pipeline in the acute-care business."
Tenet's acquisition of Vanguard is a prime example of a highly consolidated hospital market that is becoming even more consolidated. This is especially true in the for-profit realm, where Naples, Fla.-based Health Management Associates has been pegged a future seller, as well. Health Management has endured major tensions with its largest shareholder, New York City-based hedge fund Glenview Capital Management, causing many to speculate it could be next to be taken over.
As of noon EST, Vanguard's shares were up more than 67 percent to $20.76. Tenet's shares rose more than 5 percent to $44.57. Shares of HCA and CHS, both of whom did not comment on the Tenet-Vanguard merger, were down slightly.
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