Rival raises its offer for Tenet: Community Health's $4.06B offer to expire May 9

Tenet Healthcare's East Cooper Medical Center opened near Mathis Ferry Road and I-526 in Mount Pleasant in 2010.

Brad Nettles

INDIANAPOLIS -- Community Health Systems Inc. has raised its offer for rival hospital operator Tenet Healthcare Corp. by 21 percent to about $4.06 billion, but it said Monday the latest bid may only last a week. Analysts said they doubt a deal will happen.

The Franklin, Tenn.-based bidder said its all-cash offer of $7.25 a share will expire May 9 unless it sees meaningful engagement from Tenet, the owner of East Cooper Medical Center in Mount Pleasant.

Community Health said the new price was its "best and final offer" based on information currently available. The board of Dallas-based Tenet had rejected a $6 per share, all-cash offer from Community Health last month, and the companies have been fighting over a deal since last fall in a dispute that has spilled into federal court.

Community's latest offer, with the May 9 expiration, appears to be a blunt attitude change for the company, Oppenheimer analyst Michael Wiederhorn said in a research note. He called the possibility of a merger "highly unlikely."

"After indicating it was in it for the long term, (Community's) offer appears to be an exit from the negotiations rather than a more aggressive move that some might interpret," Wiederhorn wrote.

CRT Capital analyst Sheryl Skolnick said in a separate note that she thinks the latest offer also will be rejected.

Community had offered in November to buy Tenet for $5 per share in cash and $1 per share in stock. It took the offer to Tenet shareholders in December after Tenet rejected that bid. Community said in January it would nominate its own slate of directors to Tenet's board.

Tenet said in early January it was adopting a "poison pill" stock distribution measure to deter the takeover bid. A poison pill defends a company against takeovers by diluting the holdings of an unwanted acquirer. It also has delayed its annual meeting and election of directors until November.

Tenet filed a lawsuit last month claiming Community Health bilks Medicare by admitting patients to its hospitals when they should only be kept under observation, a practice that Tenet said leads to artificial inflation of Community Health's stock price.

Community Health has denied the allegation and asked a judge to dismiss the lawsuit. It also has disclosed that it received a subpoena from the U.S. Department of Health and Human Services related to an investigation of potentially improper Medicare and Medicaid claims. It said the subpoena concerns emergency department processes and procedures, including a third-party software system, along with information about emergency department physicians, including financial details.

It said it will cooperate fully with the investigation by the health department's office of the inspector general.

After Tenet's lawsuit, Community switched its cash-stock offer to an all-cash offer of $6 per share before increasing it to $7.25 per share on Monday. With 560.6 million Tenet shares and dilutive securities outstanding, the new offer raises the deal value from about $3.36 billion. Those figures exclude $4 billion in Tenet debt.

Community said Monday in a letter to Tenet directors that it was time "to move beyond lawsuits and rhetoric." It said the latest offer provides shareholders a 69 percent premium to the stock price before it made its initial proposal public in December.

But Community Chairman and CEO Wayne T. Smith said in a statement accompanying the letter that his company will withdraw the latest offer "and move on to the many other compelling growth opportunities available to us" unless it sees meaningful engagement by May 9.

Tenet has said the $6-per-share offer grossly undervalued the company, but it said Monday its board will review the revised offer, and it advised shareholders to take no action.

Skolnick said she had "serious doubts" about how Community would obtain financing for the deal, given recent events, including the subpoena.

Community said in its statement Credit Suisse and Goldman Sachs are "highly confident" financing for the deal can be obtained.