Quorum Health Group acknowledged it was discussing a "possible business combination" with another healthcare company late last week, a day after a television correspondent reported Quorum might be bought by Health Management Associates.
Both Brentwood, Tenn.-based Quorum and Naples, Fla.-based HMA declined to comment on whether they were talking with each other.
Quorum "emphasized that it had not reached any agreements with respect to the combination and that there could be no assurances that the parties would be able to agree on terms."
Shares in Quorum surged $2 to close at $25.87 on Jan. 18 after CNBC financial correspondent Dan Dorfman reported the rumored deal. HMA stock had edged up slightly but closed at $29.37, down 25 cents.
HMA is in an enviable position to do a stock deal because its shares trade at 27 times estimated 1996 earnings, compared with multiples of 14 to 16 for other hospital companies, said Deborah Lawson, vice president of research at Morgan Stanley & Co. in New York.
A merger with Quorum could increase referrals to HMA facilities and further streamline operations, said Elie Radinsky, director of corporate ratings at Standard & Poor's Corp. in New York.
Quorum manages 257 hospitals and owns 14, with operations in 44 states. HMA, concentrated in the Southeast, owns 23 hospitals and manages one, operating in 11 states.
Also late last week, Quorum reported anticipated results for the second quarter and six months ended Dec. 31, 1995.
Quorum said it expects to report this week that net operating revenues for the quarter rose 37% to $273 million. Net income increased 23% to $16.9 million, or 34 cents per share, from $13.7 million, or 28 cents per share, in the year-ago quarter.
For the first half of fiscal 1996, Quorum expects to report net operating revenues of $527 million, up 34% from $392 million. Net income for the first six months increased 25% to $31.4 million, or 63 cents per share, from $25.2 million, or 51 cents per share, in the year-ago period.