Tenet Healthcare Corp. (NYSE: THC) announced on Monday that it has agreed to acquire Vanguard Health Systems Inc. (NYSE: VHS) in a deal valued at about $1.63 billion. The move will allow Tenet Healthcare to diversify its healthcare service business.
Shares of Tenet Healthcare climbed about 5% while shares of Vanguard Health Systems skyrocketed about 67% in early trade.
According to the terms of the deal, Tenet will pay $21 for every common share held in Vanguard, in cash, which implies a premium of 70% over Vanguard’s closing stock price on Friday.
After including the assumption of Vanguard’s debt which is estimated at $2.5 billion, the deal will be worth $4.3 billion, said Tenet Healthcare Corp.
Tenet Healthcare, which, at present, manages 49 hospitals and 126 free-standing outpatient centers, said that the deal is likely to be closed before the end of this year, adding that earnings will be boosted from the first year itself following Vanguard’s merger. Tenet said that it has secured full financing commitment from the Bank of America Merrill Lynch.
Commenting over the deal, Tenet Healthcare Corp’s President and Chief Executive, Trevor Fetter said in a statement, “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 realize under healthcare reform.”
After the merger, Vanguard’s founder, Chairman and Chief Executive, Charlie Martin will serve as a board member while Vanguard’s current vice-chairman, Keith Pitts will become the vice chairman at Tenet.
In the recently concluded (first) quarter, Tenet reported a loss as the bottom line felt the pressure due to restructuring costs even as total admission fell 4% during the quarter.
Just like any other Hospital operator, Tenet also has felt pressure on its business as Americans are using lesser medical services in the backdrop of wobbly macroeconomic environment. People tend to postpone surgeries in the time of economic uncertainty. Furthermore, trend in hospital admissions have also been erratic in last few quarters.
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