Tenet Healthcare Corporation's (NYSE: THC) board issued a "poison pill" move to fend off rival hospital chain Community Health System's (NYSE: CYH) $7.3 billion bid to purchase it, the Tennessean reports.
If a person or firm buys more than 4.9 percent of Tenet's shares without its board's approval, other shareholders who own a smaller percentage will be able to buy more shares at about half the price. The "poison pill" makes a takeover less likely by diluting the holdings of a potential acquirer.
This latest move came two weeks after Community Health Systems announced it planned to offer a rival slate of directors for vote at Tenet's annual meeting. That occurred two weeks after Tenet's board nixed a $6 per share bid, deeming it too skimpy.
Although the poison pill would limit Community Health's share ownership in Tenet, a takeover by a friendly--or a not-so-friendly--buyer is still possible. "It makes an unfriendly deal harder to do but not impossible," Sheryl Skolnick, an analyst with CRT Capital in Stamford, Conn., said. "Community Health could still run its own board slate, solicit proxies in that way, to gain control of the company."
Poison pills also give boards time to try to negotiate a better price, Gary Brown, a Nashville securities lawyer, said.
In response to Tenet's move, CHS released a press release stating that, "Tenet shareholders should be deeply disappointed that their Board's response to a compelling 40 percent premium offer is a double-barreled entrenchment strategy--facilitating a significant delay of their 2011 Annual Meeting and installing a poison pill. We are confident that Tenet shareholders will see these steps for what they are: the actions of a Board that is not working for them. Rather than resorting to delaying tactics, Tenet should engage with us in good-faith discussions to complete a mutually beneficial transaction."
To learn more:
- read the Tenet press release
- here's the press release from Community Health Systems
- read the Tennessean's story