* 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 dateline)
By Susan Kelly
CHICAGO, May 17 (Reuters) - 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 Capital.
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 Exchange.
“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 Friday’s close.
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. [ID:nN16202168]
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 Universal Health. (Reporting by Susan Kelly in Chicago and Shrutika Verma and Anand Basu in Bangalore; Editing by Gerald E. McCormick, Jon Loades-Carter, Jarshad Kakkrakandy)