Community Health Systems Inc. plans to spend $3.9 billion to acquire Health Management Associates Inc. in a deal that would create a giant U.S. hospital chain just as the health care overhaul starts funneling millions of newly insured people into the health care system.
But Community Health wants to buy its fellow hospital operator at a discount, with shareholders assuming some of the risk that the company faces from federal investigations. Investors panned that idea, at least initially, by sending shares of Health Management plunging Tuesday after the deal was announced.
Community Health, based in Franklin, Tenn., plans to pay a combination of cash and stock valued at $13.78 for each HMA share. It also will make an additional contingent value right payment of up to $1 per share depending on how the investigations play out.
Naples, Fla.-based Health Management, also known as HMA, said Tuesday it has received a fresh round of subpoenas from the U.S. Department of Health and Human Services, Office of the Inspector General, regarding physician relationships and some emergency room operations.
Community Health said its deal totals $3.9 billion, or $7.6 billion counting assumed debt. The board members of both companies have approved the deal, but regulators and HMA stockholders still have to clear it.
HMA shares sank almost 11 percent, or $1.62, to $13.30 in trading Tuesday. That's 48 cents below the offer price. The stock had climbed more than 60 percent this year as of Monday, when it closed at $14.92.
Separately, HMA also said Tuesday it expects to report second-quarter earnings of between 10 cents and 11 cents per share on revenue of about $1.46 billion. That's well below Wall Street expectations.
Analysts forecast, on average, earnings of 20 cents per share on $1.73 billion in total revenue, according to FactSet.
"It's a really poor performance, and if ever there was a reason for change in control, this was it," said Sheryl Skolnick, an analyst who follows the company for CRT Capital Group.
HMA said its revenue from established hospitals is expected to fall due in part to a shift in the payer mix, a reduction in surgeries and rising bad debt, which is basically uncollectible revenue.