Hospital operator Tenet Healthcare Corp. announced Monday it has agreed to acquire smaller rival Vanguard Health Systems Inc. for approximately $1.73 billion plus the assumption of debt to expand into new areas, more evidence of consolidation driven by President Barack Obama's healthcare reforms.
Vanguard was taken private by a group led by the Blackstone Group in 2004 and the private equity firm is still the largest shareholder with a 38% stake. CEO Charlie Martin, who founded the company in 1997, holds 4.18%. The purchase offer of $21 per share represents the highest price for the stock since the company's initial public offering in 2011.
Analysts said the premium Tenet paid was reasonable, given the potential savings from the deal. Tenet said it expects the deal to add to earnings in the first year and estimates annual savings of $100 million to $200 million.
Hospital stocks have rallied in 2013 as investors expect the companies to benefit as more Americans are covered by health insurance and hospitals lose less money treating the uninsured.
Tenet operates 49 hospitals and 122 free-standing outpatient centers hospitals in California, Texas, Pennsylvania and several states in the Southeast. Vanguard owns and operates 28 acute care and specialty hospitals in the Midwest, South and Massachusetts. Gibson Dunn & Crutcher was Tenet's legal counsel and Lazard, Bank of America Merrill Lynch, Barclays and Teneo Capital were financial and strategic advisers.
"This acquisition will take Tenet into new geographic markets, expand the breadth of our service offerings, diversify our earnings sources and increase the benefits we expect to realise under healthcare reform," Tenet CEO Trevor Fetter said in a statement.
Tenet shares, which closed at $41.85 Friday, were up 6% in trading before the bell on the New York Stock Exchange on Monday.