Hospital operator Community Health Systems Inc. is taking its $3 billion cash and stock offer for smaller rival Tenet Healthcare Corp. public, in a move to rally shareholder support for the deal.
The deal would create the nation's largest hospital chain, with 176 hospitals across 30 states and annual revenue of about $22 billion. Tenet shares surged nearly 50 percent in aftermarket trading on the news, rising $2.04 to $6.30.
Community Health said Thursday it sent a letter to Tenet's board last month offering $6 per share for the Dallas-based company, including $5 in cash and $1 in stock. That would represent a 40 percent premium to Tenet's closing price Thursday of $4.29.
Including assumed debt, the company values the deal at about $7.3 billion. Based on Tenet's 485.5 million shares outstanding on Nov. 2, the cash and stock portion would be worth $2.91 billion. Community Health said the cash portion would be funded with available cash on hand and debt financing.
But Franklin, Tenn.-based Community Health said Tenet Healthcare's board rejected the offer on Monday, saying it does not offer "even remotely fair value" to shareholders. Messages left for a Tenet spokesman weren't immediately returned.
In a letter Thursday to Tenet's board, Community Health Chairman and CEO Wayne T. Smith said he is "surprised and disappointed" by the flat rejection and now wants Tenet shareholders to decide for themselves. Smith said the geographic proximity of the companies' facilities makes the combination a good fit and with the expanded scale and market reach that a merger would provide, the companies together would be well-positioned to navigate health care reform.
"It remains our strong desire to reach an agreement with Tenet," Smith wrote. "However, we are committed to completing this transaction and will consider all alternatives necessary to do so."
Tenet Health care, which operates about 50 hospitals, last month reported a return to third-quarter profit as it booked hefty deferred tax benefits. Revenue remained flat at $2.26 billion. Community Health, which operates more than 120 hospitals, in October reported quarterly earnings of $70.4 million on revenue of $3.25 billion.
In aftermarket trading, Community Health shares fell $1.39, or 4.4 percent, to $30.25.
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