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Tenet outlines why Community bid is too low


By Vince Galloro
Posted: January 11, 2011 - 11:00 am ET
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Tenet Healthcare Corp., Dallas, laid out its case today for why the bid from Community Health Systems, worth a total of $7.3 billion in cash, stock and assumed debt, “grossly undervalues” Tenet, as the company has contended.

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Tenet gave a long-range outline of its expectations for the company's financial results from 2011 through 2015, as well as some insight to its results for the fourth quarter of 2010. By 2015, Tenet expects that it will have eliminated its historic underperformance on margins relative to its peer hospital companies, based on the metric of earnings before interest, taxes, depreciation and amortization, or EBITDA. Tenet expects its EBITDA margin to be between 16% and 18% in 2015, or better than an industry average of just under 15% that Tenet expects for 2010.

Tenet said it will accomplish this with four internal initiatives. These are: boosting outpatient services so these higher-margin services make up a greater portion of the company's revenue; growth in Tenet's Conifer Health Solutions business, which provides revenue-cycle and physician marketing services to other hospitals; cost savings and clinical improvement from standardization of care; and federal subsidies for achieving meaningful use of electronic health-record systems. Tenet also expects to benefit from an improving economy and coverage of uninsured patients under health reform from 2014. Moreover, Tenet expects to shelter its profits from corporate tax through 2014 or 2015, using credits based on its net operating losses in prior years.

Regarding the offer made by Franklin, Tenn.-based Community, Trevor Fetter, Tenet's president and CEO, said, “It does not reflect the value of our compelling growth prospects.”

Community executives are scheduled to make a presentation at the J.P. Morgan healthcare investor conference at 4:30 p.m. ET today.


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