* Offers $33.75/shr for Psychiatric Solutions
* To pay $2 bln in cash, assume $1.1 billion of debt
* Expects deal to be significantly accretive to earnings
* Universal Health shares up nearly 7 percent
(Adds executive and analyst comments, byline, Chicago
By Susan Kelly
CHICAGO, May 17 Hospital operator Universal
Health Services Inc (UHS.N) said Monday it would buy smaller
rival Psychiatric Solutions Inc PSYS.O for $2 billion in
cash, ending a bidding war with private-equity firm Bain
Universal Health Services would also assume about $1.1
billion of Psychiatric Solutions' debt.
The deal, announced Monday, would nearly double the number
of psychiatric facilities Universal Health operates and make it
the largest provider of behavioral healthcare services. Its
shares rose nearly 7 percent to $41.76 on the New York Stock
"The psychiatric business is not for the faint of heart. It
is a business they know well and are good at operating," said
CRT Capital Group analyst Sheryl Skolnick.
In acquiring Psychiatric Solutions, Universal Health said
it saw an opportunity to snap up a large group of assets at an
attractive price. It expects the transaction to add
significantly to its earnings per share, excluding one-time
costs related to the deal.
"This transaction is transformative for UHS, repositioning
us as the largest provider of behavioral healthcare services,"
Universal Health Chief Financial Officer Steve Filton told
analysts on a call.
The $33.75 per share offer represents a 3.4 percent premium
to Psychiatric Solutions' Friday closing price of $32.63.
Psychiatric Solutions, whose shares fell 0.7 percent to $32.40
Monday, had a market capitalization of about $1.87 billion at
EXPANDING MENTAL HEALTH CLINICS
Shares of Psychiatric Solutions have risen 27 percent since
March, when the company first confirmed it had been approached
by third parties about a possible acquisition and had hired
Goldman Sachs as a financial adviser. [ID:nN10164117]
Private-equity firm Bain Capital, which participated in an
auction for Psychiatric Solutions until Sunday, did not put in
a topping bid, a source told Reuters earlier in the day.
Bain is a backer of hospital operator HCA Inc, which
earlier this month filed for an initial public offering of up
to $4.6 billion.
Universal Health, based in King of Prussia, Pennsylvania,
operates 25 acute care facilities and 102 mental health
facilities. With the acquisition of Psychiatric Solutions, it
would gain an additional 94 mental health facilities.
Including Psychiatric Solution's $1.8 billion in 2009
revenue, the two companies had combined revenue of more than $7
billion last year.
Universal Health said it expects to realize annual cost
synergies of $35 million to $45 million within three years of
closing the deal. As much as 40 percent of those savings are
expected to come from the salary and equity compensation of
Psychiatric Solutions' senior management, Filton said.
In a regulatory filing last week, Franklin, Tennessee-based
Psychiatric Solutions said it received a subpoena from the U.S.
Justice Department seeking documents related to compensation,
stock sales and option awards for some senior executives and
to communications with investors. The company said it is
cooperating with the DOJ.
The transaction has committed debt financing to be provided
by JPMorgan Chase Bank and Deutsche Bank AG, Universal Health
said. J.P. Morgan Securities Inc is financial adviser to
(Reporting by Susan Kelly in Chicago and Shrutika Verma and
Anand Basu in Bangalore; Editing by Gerald E. McCormick, Jon
Loades-Carter, Jarshad Kakkrakandy)