UPDATE 4-Community Health makes $3.3 bln play for rival Tenet

* Tenet spurns offer as grossly inadequate

* Deal would create largest U.S. hospital chain

* Tenet’s shares skyrocket (Adds Community Health stock price)

LOS ANGELES/NEW YORK, Dec 9 (Reuters) - Community Health Systems Inc CYH.N has offered to buy Tenet Healthcare Corp THC.N for $3.3 billion and create the country's largest hospital chain, but Tenet rejected its larger rival's unsolicited bid as "opportunistic" and "inadequate."

Shares in Tenet soared nearly 50 percent in extended trade. Including debt, the deal is valued at some $7.3 billion, Community Healthcare said in a statement.

Analysts say the largest U.S. hospital operators are struggling to contain costs and mounting piles of bad debt, and have been hit by a stalled economy and stubbornly high unemployment levels. Some had speculated that delays in healthcare reform would trigger a rash of acquisition activity in the sector.

The country’s largest publicly traded hospital operator is offering $5.00 a share in cash and $1.00 per share in common stock for Tenet, whose hospitals are located primarily in the southern and western United States.

The offer from Community Health represented a 40 percent premium over Tenet’s Thursday closing price, it said.

But Dallas-based Tenet said later on Thursday its board believes the deal would transfer its own growth potential to Community Health, without adequately compensating Tenet shareholders.

“In addition, the board has serious concerns about Community Health’s ability to integrate and operate a business like Tenet,” Tenet said in a release.

Tenet provided a lengthy letter from its chief executive, Trevor Fetter, to Community Health CEO Wayne Smith, dated Wednesday, which said the proposal “grossly undervalues Tenet.”

“It is clear to us that your stand-alone prospects have slowed and you are pursuing an acquisition of Tenet to drive the growth that you cannot achieve on your own,” Fetter wrote, saying Tenet has excellent momentum and its recent acquisitions were performing well.

If it goes through, the deal would create a company with $22 billion in annual revenue, owning or operating 176 hospitals in 30 U.S. states.

Tenet has 49 acute-care hospitals in 11 states, 59 outpatient service centers, 57,613 employees and had $9 billion in net operating revenue in 2009. Community Health Systems said it had first approached Tenet on Nov. 12 but the smaller company rejected its suitor’s advances on Dec. 6.

That prompted the bidder to resubmit an offer on Thursday.

Shares of Tenet soared 47 percent to $6.32 in after-hours trade, from a regular-session close of $4.29. Community Health fell 4.4 percent after hours, also on the New York Stock Exchange.

Tenet shares fell more than 4 percent on Nov. 4 after it reported disappointing third-quarter results, as it treated fewer patients with commercial health insurance amid the weak economy.

The company has focused on managing expenses to counter declining patient volumes and elective surgeries in the lengthy economic downturn.

But analysts have said cost-cutting efforts by Tenet and other hospital companies may not be able to offset the lost revenue from shrinking numbers of commercial managed care patients.

So far this year, shares of Community Health Systems have outperformed Tenet, falling 11 percent, compared with a 20 percent decline for its smaller rival.

Credit Suisse and law firm Kirkland & Ellis LLP are advising Community Health Systems. Barclays Capital is acting as financial advisor to Tenet. (Reporting by Edwin Chan and Alex Dobuzinskis; editing by Gunna Dickson, Bernard Orr and Richard Chang)