In the latest attempt to take over Tenet Healthcare, Community Health Systems has announced plans to nominate directors for election at Tenet's 2011 annual shareholder meeting.
CHS hopes to elect a board that will look more favorably on its bid to acquire Tenet for $6 per share of Tenet stock. As offered, the Community Health deal values Tenet at roughly $3.3 billion.
Tenet was quick to return fire. In a press release issued shortly after the CHS announcement, company officials said they had not yet scheduled the 2011 annual meeting and that "we believe that Community Health intends to nominate candidates for election to the Tenet Board of Directors solely to help advance its inadequate and opportunistic proposal to acquire Tenet."
CHS approached Tenet in November with an offer to purchase the company for $6 per share. At the time, Tenet shares were trading for roughly $4.60, and the CHS offer represented a 40 percent premium on the trading price. After sitting on the offer for nearly a month, Tenet rejected the bid, calling the offer opportunistic based on Tenet's deflated stock price, while also citing serious concerns about Community Health's ability to integrate its 50 large and mostly urban hospitals.
CHS then publicly announced its offer on December 9, hoping the 40 percent premium it was offering for Tenet shares would curry favor with the company's shareholders and pressure the Tenet board to make a deal. But the risky move backfired, as the price of Tenet shares rose sharply the day after the announcement to close at $6.65 per share, more than 10 percent higher than the CHS offer.
The recent announcement by CHS shows it is holding the line on its original offer, despite the fact that Tenet stock has continued to trade well above its original offer.
"It is unfortunate that Tenet's board of directors has rejected our proposal and refused to sit down with us to discuss our premium offer," said Wayne T. Smith, chairman, president and CEO of CHS. "We believe Tenet shareholders would be best served by a board focused on maximizing shareholder value, and we intend to propose directors who will look out for the interests of Tenet shareholders. We are convinced of the powerful logic of combining CHS and Tenet and, while it remains our strong preference to proceed on a consensual basis, we are fully committed to completing this strategically and financially compelling transaction."
Wall Street analysts, however, believe that if CHS wants to close the deal, they may be required to raise their bid. Analysts from Leerink Swan & Company and CRT Capital Group have indicated Community Health may need to raise its bid to around $7 per share to generate interest from Tenet shareholders.
Further, with Tenet now 'in play' as a possible takeover target, a third party could enter the fray with its own offer, a move that would further increase the price for any Tenet suitor.