Tenet Healthcare Corp. in Dallas took the unusual step of admitting it is involved in preliminary discussions to acquire Healthscope, the second-largest private hospital corporation in Australia, to combat what the U.S. hospital operator described in a press release as "recent volatility in the trading of its common stock." The initial response to the announcement wasn't positive, with Tenet's shares falling 17 percent on June 1, reports the Dallas Morning News.
At least three bidders are going after Healthscope, which operates 43 hospitals (15 percent of Australia's private hospital market). Both Tenet and the U.S. private equity firm Kravis Roberts & Co. have submitted bids valued at $1.84 billion Australian ($1.56 billion U.S.), according to the Wall Street Journal. And a private-equity consortium has bid a similar $1.82 billion Australian.
Tenet offered this rational for its move: "Tenet believes the acquisition, if consummated, will only be completed at a price which creates value for its shareholders. Tenet also believes the acquisition would improve Tenet's payer mix, and enhance Tenet's margins and growth rates both currently and for the long-term. The acquisition of Healthscope would advance Tenet's position as a leading global hospital operator and provide opportunity for cross-border sharing of knowledge and capabilities."
Over the past few years, Tenet has been focused on a domestic turnaround, actually selling or closing 67 hospitals since 2002, notes the Dallas Morning News. Consequently, words like "puzzling" and "surprising" were commonly used by analysts to describe the potential acquisition. J.P. Morgan called the transaction "a balance sheet stretch," given Tenet's existing 85 percent debt-to-capital ratio, says the Wall Street Journal.
To learn more:
- read the Tenet press release
- read this Dallas Morning News article
- read this Wall Street Journal article
- read this Bloomberg Businessweek article