NEW YORK (Reuters) - HCA Holdings Inc, the biggest U.S. for-profit hospital chain, sold more shares than planned, at the high end of an expected price range, completing an initial public offering on Wednesday, sources briefed on the matter said.
Although analysts warned of long-term risks arising from HCA’s big debt and uncertainties surrounding U.S. healthcare reform, investor interest in the private-equity backed company dwarfed the deal’s size, sources familiar with the situation said.
HCA sold 126.2 million shares for $30 each, raising about $3.79 billion, the sources said. This marked the largest private-equity backed IPO in U.S. history.
The company had planned to sell 124 million shares for $27 to $30 each. The extra shares sold came from selling shareholders, who sold 38.5 million shares, 6 percent more than originally planned.
HCA’s blockbuster offering is expected to encourage a slew of similar exits from investments made at the height of the credit bubble in 2005 to 2007.
“It sends a message that the IPO market is open for business,” said Bill Buhr, IPO strategist at Morningstar.
“If you can price a $3 billion deal for a hospital operator that has a few warts and do so successfully, there are a lot of deals that could be done right now.”
Nashville, Tennessee-based HCA had filed with U.S. regulators in May to raise up to $4.6 billion but last month set terms that cut the size of the deal by 19 percent.
Far surpassing its peers by market cap, a newly public HCA could generate more investor interest in the sector, and also turn the company into a major acquirer, with possible involvement in Community Health Systems’ (CYH.N) $3.3 billion takeover battle for Tenet Healthcare Corp (THC.N).
“The existing firms that are out there are small in comparison,” said Nathan Snyder, a portfolio manager at Snow Capital Management, which owns shares of LifePoint Hospitals LPNT.O, Health Management Associates HMA.N and Community Health.
“Larger funds if they want to own hospitals are going to have to do it through an HCA, which probably means it’s going to come at a valuation that wouldn’t make it inexpensive.”
Analysts warned that in clamoring for HCA’s shares, investors are overlooking big longer-term risks, including the company’s high level of debt and the uncertain impact of healthcare reform.
The new U.S. healthcare law is expected to increase the number of insured patients seeking medical help, but it will also phase in Medicare payment cuts to hospitals and will make it harder to negotiate reimbursement rates.
HCA’s debt, currently more than $26 billion, would continue to weigh even after the company uses proceeds from the IPO to pay down borrowings. HCA is profitable and has healthy cash flows, but its debt exceeds the value of its assets on the books by more than $12 billion.
In 2010, HCA borrowed to pay more than $4 billion in dividends to its stakeholders, mainly the private equity funds that bought the company in 2006.
HCA’s IPO is benefiting from the strong momentum created by a series of successful IPOs this year.
Over the past few weeks, consumer measurement company Nielsen Holdings (NLSN.N) raised $1.6 billion, Florida-based BankUnited (BKU.N) raised $783 million, and pipeline company Kinder Morgan Inc (KMI.N) raised $2.9 billion.
Toys R Us TOY.UL has filed with U.S. regulators to raise up to $800 million, and Freescale Semiconductor has filed to raise up to $1.15 billion. Although neither company has set terms or picked a debut date, a blockbuster IPO by HCA could help them — and other buyout-backed companies mulling IPOs.
“The window has not been more open than now in the past four to five years,” said Morningstar’s Buhr.
HCA was taken private in November 2006 in a $21 billion deal, excluding debt, that involved Bain, KKR (KKR.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N) and HCA’s founder, healthcare mogul Dr. Thomas F. Frist Jr.
The shares are expected to begin trading on the New York Stock Exchange on Thursday under the symbol “HCA.” (HCA.N) Underwriters of the IPO were led by Bank of America Merrill Lynch, Citi and JPMorgan Chase (JPM.N).
Additional reporting by Bill Berkrot, Stephen Lacey, Ben Berkowitz and Susan Kelly in Chicago; Editing by Bernard Orr, Gary Hill