After consultations with advisors, Tenet said on Friday, it had determined that the revised bid “not in the best interest of Tenet or its shareholders,” leaving in doubt the outcome of a takeover battle that began last November.
Community Health, the second-largest U.S. hospital chain, sweetened its hostile bid earlier this month, changing its $6 per share offer to all cash from $1 in Community Health stock and $5 in cash. The move was meant to protect Tenet shareholders from any risk associated with the stock of Community Health, which is the subject of a U.S. government probe into billing practices.
In rejecting the bid, Tenet Chief Executive Trevor Fetter said that since the initial offer in November his company “has demonstrated improving business trends, including the best fourth quarter results in seven years. In addition, industry fundamentals are improving, and Tenet’s outlook for 2011 and longer-term financial performance reflects strong growth.”
Those prospects were not reflected in the Community Health bid, he said.
Community Health said it was disappointed by the decision. “We remain ready to engage in constructive discussions to move this transaction forward. We would welcome the opportunity to review additional information Tenet can provide and are prepared to recognize any additional value it can demonstrate,” it said.
Community Health has argued the combination would gain greater operating efficiencies and leverage for negotiating with insurers and recruiting physicians, providing a compelling strategic rationale for the transaction. The combined companies would have 176 hospitals in 30 states and an estimated revenue of $21.9 billion.
In a letter to Community Health, CEO Fetter and Chairman Edward Kangas said they “have never been opposed to a sale,” but said current offer shortchanged shareholders.
Aside from the price, they pointed to concerns “regarding disclosure and regulatory compliance” that were the basis of a lawsuit Tenet filed against Community Health on April 11.
Tenet’s lawsuit accuses Community Health of admitting patients for needless stays and bilking the U.S. government and private insurers. Community Health has asked the courts to dismiss the lawsuit.
Meanwhile, Community Health has also disclosed that the U.S. government had subpoenaed the company in connection with an investigation of possible improper claims submitted to Medicare and Medicaid.
Community Health intends to present a full slate of 10 independent director nominees for election to Tenet’s board at its 2011 annual meeting. That meeting has been delayed until November 3, and the entire board is up for re-election, Community Health said.
Shares of Community Health fell 20 cents to $30.69 on Thursday, while Tenet shares rose 6 cents to $6.77. U.S. stock markets were closed Friday.
Reporting by Paul Thomasch; Editing by Marguerita Choy