Hospital owner Vanguard Health in tepid market debut

NEW YORK/CHICAGO Wed Jun 22, 2011 1:45pm EDT

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NEW YORK/CHICAGO (Reuters) - Hospital operator Vanguard Health Systems Inc VHS.N got a tepid reception on Wall Street, raising less money than planned in its debut and seeing shares rise only slightly on their first day of trading, as investors fear a new U.S. recession.

Hospital groups such as Vanguard, controlled by private equity firm Blackstone Group (BX.N), are sensitive to sentiment about the economy and its impact on patients' ability to pay for treatment. Just three months ago, rival hospital operation HCA Holdings Inc (HCA.N) turned in a strong debut amid optimism about a recovery.

"People are less optimistic about the (hospital) group right now than they were when HCA debuted. They are now focused on the possibility of a double-dip recession and hospital bad debt is directly tied to the economy," said A.J. Rice, an analyst with Susquehanna Financial Group.

Vanguard shares were at $18.28, 1.6 percent above their initial public offering price, in afternoon trading Wednesday on the New York Stock Exchange. The company on Tuesday sold 25 million shares for $18 each after accelerating its IPO.

Rice said Vanguard's management is well-regarded on Wall Street, but that the portfolio was less mature than that of HCA, the largest for-profit U.S. hospital operator with a strong foothold in important markets like Florida and Texas.

"People just find Vanguard's portfolio a little harder to get their arms around. HCA's portfolio is easier to understand," he said.

ACCELERATED SCHEDULE

Vanguard had filed to sell shares for $21 to $23 each and was expected to price its IPO after the close of U.S. markets on Wednesday.

Difficult markets caused a change of plans, and Reuters IFR reported on Tuesday that Vanguard's IPO pricing had been moved up and the shares were unofficially expected to price between $18 and $19.

The hospital operator is the latest of several private equity-owned healthcare companies to seek capital in U.S. public markets as concerns about a slowing U.S. economy spur investors toward defensive, cash-generating companies.

But economic growth is slowing enough that the overall stock market is weaker, amid concerns over unemployment and manufacturing.

In March, Tennessee-based HCA raised $3.79 billion in the biggest U.S. private equity-backed IPO.

Earlier this month, sources told Reuters that Toledo, Ohio-based HCR ManorCare could go public after the September U.S. Labor Day holiday in a deal that could give the nursing home and assisted living facility operator an enterprise value of up to $2 billion.

Blackstone in 2004 purchased a majority equity interest in Vanguard for $1.75 billion. Leading up to the IPO, Blackstone owned 66 percent of Vanguard. It did not sell any shares in the IPO and was expected to retain a stake of close to 40 percent in the company, according to a filing with the U.S. Securities and Exchange Commission.

Nashville, Tennessee-based Vanguard said it would use proceeds from the IPO to repay debt and to pay a net liability due to its sponsors.

Founded in 1997, Vanguard operates 26 hospitals in Arizona, Illinois, Michigan, Texas and Massachusetts. In the nine months ended March 31, Vanguard posted a net loss applicable to stockholders of $1 million on revenue of $3.4 billion.

Underwriters on the Vanguard IPO were led by Bank of America Merrill Lynch, Barclays Capital, Citi, Deutsche Bank Securities and JPMorgan.

(Additional reporting by Maria Aspan; editing by John Wallace and Matthew Lewis)

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