Though physician services provider TeamHealth has turned down a $7.8 billion takeover bid by AmSurg, analysts on Wall Street think the deal is probably in the best interest of the company.
AmSurg, a for-profit manager of ambulatory surgery centers, went public with the bid this week, prompting TeamHealth's stock to surge and analysts to weigh in on the proposed deal.
[Also: AmSurg offers $7.8 billion to merge with TeamHealth]
Here are what a few analysts are saying:
Cantor Fitzgerald cites strong "business mix"
"AMSG and TMH (which is in the process of acquiring IPCM) would have a more attractive business mix as a combined company, with 46 percent percent of its revenue derived from the ER and 20% percent from hospitalists. These two functions interact, and providers prefer that physicians in the ER and on the floor work together. They are also two of the most important patient-facing positions in the hospital, and, we believe, a strong base for adding contracts in other departments like anesthesiology (about 22 percent of pro forma revenue) and radiology," wrote analyst Joseph France.
France, however, said the deal carries several risks, including cuts to Medicare and Medicaid. He also pointed to slowing utilization at AmSurg.
[Also: TeamHealth turns down $7.8 billion bid by AmSurg, says it's too low]
"Demand for procedures performed at the company's ambulatory surgery centers has slowed in recent years. Some of this could be due to the weak economy and plans with fewer benefits or higher deductibles, but the extent of any recovery is unclear, and there could be other reasons for the slowdown. The importance of colonoscopies for individuals aged 50 and over is well established, but only half of those turning 50 each year have recently undergone the procedure. This could be in part due to its non-emergency nature, the difficult preparation for the procedure, and its relative high cost. AmSurg says that cataract and orthopedic procedures have also slowed," he wrote.
Baird Equity Research says deal "makes sense"
"With 65 percent overlap in the shareholder base, and a case for accelerating organic growth across the combined businesses with, we like chances constructive dialogue could ensue. TMH presumably feels boxed in with the pending IPMC transaction, thus we get the reluctance to engage. Upside in TMH feels like it outweighs the downside, and could be the best way to play this," wrote Baird analyst Whit Mayo.
As for next steps, Mayo said AmSurg will go actively looking for support, but did not believe the company would go too hostile.
"To the extent management can engage the Street and "sell" on the thesis that these two companies together can grow meaningfully fast than apart, could prompt several larger holders to lean on TMH to engage. We don't see this process likely to get more unfriendly (e.g., nominate slate)," he wrote.
RBC capital likes the deal, but doubts the market will back it
"Based on the spread vs. the proposed price, the market appears skeptical that a deal will be consummated. That being said, we view the risks to the proposed transaction as low, and we expect AMSG to increase its offer to be more attractive to TMH shareholders," wrote analysts Frank Morgan, Ben Hendrix and Anton Hie.
However, the authors said the deal plays right into the emerging trend of bundling physician services with outpatient, ambulatory care from a treatment and even a payment position.
"We have seen increasing interest among health systems to "bundle" the provision of physician services with single, third-party providers. With the most comprehensive range of physician specialties across the continuum of care, the combined company, in theory, would be very well positioned to capitalize on the trend to more comprehensive relationships with health systems," they wrote.
"In addition, the combined company would be well positioned to coordinate care in an effort to reduce costs, and to help providers transition to value-based and risk-sharing reimbursement systems, such as the Bundled Payments for Care Initiative program, which was a key component of TMH's investment rationale behind the IPCM acquisition."
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