Tenet Healthcare has rejected Community Health Systems' $7.25-per-share, all-cash offer to acquire the company, a move that likely signals an end to a six-month struggle for control of the Dallas-based operator of 49 hospitals and 84 acute care centers.
In conjunction with the May 9 announcement and anticipating a drop in market interest in its stock (which has traded higher on takeover speculation), Tenet also launched a $400 million stock repurchase program.
"We believe that Community Health's latest proposal does not reflect our current financial position, our 2011 outlook and our positive future growth prospects," said Trevor Fetter, president and CEO of Tenet. "As we outlined in our earnings announcement last week, we are delivering strong performance in virtually every aspect of our business – our volume trends are improving and pricing and cost trends continue to be favorable. Our first quarter results provide compelling evidence that our positive earnings trajectory is gaining momentum, and the board and management team are confident that Tenet is on track to meet its financial and strategic objectives."
The announcement should put an end to the effort by CHS to acquire Tenet, which began with an offer in November 2010 to acquire the company for $6 per Tenet share in cash and CHS stock. CHS took its bid hostile late last year when Tenet rejected the initial offer.
Since then, the two companies have been locked in a bitter and contentious war of words and actions. Shortly after making its hostile takeover bid, CHS nominated a full slate of candidates for Tenet's board of directors in a move to gain a favorable vote for its proposal. Tenet responded by moving its annual shareholders meeting from May to November to buy time to allow the company to show, via its operating results, that the CHS offer was inadequate. The company also adopted a 'poison pill' provision designed to make it financially unfeasible for any company or entity to acquire more than a 5 percent stake in Tenet.
The wrangling between the two companies reached its height in mid-April, when Tenet filed a lawsuit against CHS contending that its hospital admissions policies enabled it to overbill Medicare by roughly $280 billion over six years – which inflated the value of CHS stock and its offer for Tenet.
CHS defended its admissions practices, but its stock price has fallen nearly 25 percent since the lawsuit and subsequent revelations of a Justice Department investigation of its billing practices.
CHS raised its offer to $7.25 all-cash last week in a last-ditch attempt to at least open negotiations with Tenet for merger talks. But the company made clear that this was a final offer and gave May 9 as the final deadline.
"We are making this offer to bring this matter to a prompt conclusion in the best interests of all concerned," said Wayne T. Smith, chairman, president and chief executive officer of CHS, at the time of the offer. "We call on the Tenet board to uphold its fiduciary duties and enter into good-faith discussions with us to conclude a mutually beneficial transaction. Unless we see meaningful engagement by May 9, 2011, we will withdraw the offer and move on to the many other compelling growth opportunities available to us."
Wall Street watchers had expected Tenet to reject the final offer from CHS, as many had pegged a higher value of between $8 and $9 per share as fair value for the company. Further, with the weight of a Justice Department investigation looming, analysts have suggested CHS' time would be better spent focused on the government investigations rather than a stalled hostile takeover.