CHICAGO Hospital operator Community Health Systems Inc (CYH.N) raised its bid on Monday for uncooperative takeover target Tenet Healthcare Corp (THC.N) to $4.1 billion, saying it was its best and final offer and giving Tenet a week to respond.
Tenet's shares slumped more than 3 percent, as some investors doubted Tenet would accept the raised bid. Analysts said Community Health now appeared ready to walk away from the deal, after initially indicating it had the patience for a lengthy courtship.
Tenet has fiercely opposed Community Health's overtures, going so far as to accuse its pursuer in a lawsuit of admitting too many patients to its hospitals to inflate profits and overbill Medicare.
Tenet, in a statement, said its board will review the revised proposal, which raises the per-share offer price to $7.25 from $6.
Community Health said the new offer will expire if Tenet does not begin discussions with Community by May 9, and it will withdraw its nominees for Tenet's board.
The increased bid is Community Health's "best and final offer based on information currently available" to Community, the company said. It said it hoped to reach a deal soon.
"We call on the Tenet Board to uphold its fiduciary duties and enter into good faith discussions with us to conclude a mutually beneficial transaction," Community Health Chief Executive Wayne Smith said in a statement.
"Unless we see meaningful engagement by May 9, 2011, we will withdraw the offer and move on to the many other compelling growth opportunities available to us."
Last month, Tenet's board rejected the $3.3 billion offer from Community Health, saying the price "grossly undervalues the company."
Community, the second-largest U.S. hospital operator, previously sweetened its $6-a-share bid for No. 3 Tenet to all cash from a mix of cash and stock.
Jefferies analyst Arthur Henderson said he expects Tenet to turn down Community Health's latest offer as inadequate. Expectations that Tenet will rebuff the latest offer are weighing on Tenet's shares this morning, he said.
"We expect Tenet to reject Community's bid on the basis that it remains too low," Henderson said.
Oppenheimer & Co analyst Michael Wiederhorn said Community Health's latest offer appears to be an attempt to exit from the negotiations rather than a more aggressive move to acquire Tenet.
"Up until this point, Community has discussed how it is in it for the long haul, so this appears to be a stark change in attitude," Wiederhorn said. "We continue to view this merger as highly unlikely."
Community Health last week responded to Tenet's accusations that it improperly admitted patients to its hospitals for needless stays in a detailed presentation to investors and analysts, calling the smaller company "misguided and wrong."
The U.S. Department of Justice, multiple federal prosecutors' offices and the Office of the Inspector General for the Department of Health and Human Services are investigating the claims.
Wiederhorn said Community Health should focus its attention on internal matters and said an acquisition of Tenet could be tough for Community to finance, especially at rates that still make the deal attractive.
Community Health said it was confident it could obtain financing in the capital markets for its revised offer.
LEGAL BATTLE CONTINUES
On Monday, Tenet filed papers asking the federal court to order Community to turn over documents and records relating to its guidelines for admissions. The requested information included reports used in meetings with hospital executives since 2000, complaints relating to admission policies at Community hospitals and records relating to a whistle-blower complaint in Indiana that was joined by the U.S. government.
It also sought records to determine the extent to which Pennsylvania tax revenues enabled Community to meet analysts' consensus estimates for first quarter earnings.
After Community changed its bid to all cash, it asked the court to dismiss Tenet's complaint because the takeover target had no standing to sue under securities laws in an all-cash bid.
However, Community is also waging a proxy fight to replace Tenet board members at a shareholder meeting in November. Tenet said on Monday it needed the documents and would continue to pursue the lawsuit to ensure its shareholders could make informed decisions about future corporate governance.
Community Health has said it intends to nominate a full slate of 10 independent directors for election to Tenet's board. Tenet postponed the annual meeting until November 3.
Tenet is scheduled to issue its quarterly earnings report on Tuesday.
Community Health's shares fell 51 cents, or 1.66 percent, to close at $30.22 on the New York Stock Exchange. Tenet shares fell 24 cents, or 3.46 percent, to end at $6.69.
(Additional reporting by Tom Hals and Rajarshi Basu; Editing by Dave Zimmerman, Maureen Bavdek and Andre Grenon)