With OrNda HealthCorp in its fold, a financially stronger Tenet Healthcare Corp. is ready to give Columbia/HCA Healthcare Corp. a run for its money in pursuing not-for-profit hospitals.
The nation's second-largest for-profit owner and operator of hospitals with 127 acute-care facilities in 22 states, Santa Barbara, Calif.-based Tenet also has $2 billion for new acquisitions after finalizing a related debt offering and financing agreement.
Tenet's acquisition of OrNda closed last week after shareholder approval and a settlement with the Federal Trade Commission (See story, below).
"We are seeing a great deal of interest from the not-for-profit side in learning more about Tenet," said Jeffrey Barbakow, Tenet's chairman and chief executive officer. "In many cases, those providers are strong entities, and a relationship with them short of an acquisition makes a great deal."
Last week's close of Tenet's $3.1 billion acquisition of Nashville, Tenn.-based OrNda creates a company with $9 billion in annual revenues. Tenet acquired OrNda in a $1.8 billion stock swap and assumed $1.3 billion in debt.
But the deal still leaves Tenet less than half the size, in terms of revenues, of 350-hospital Columbia. That doesn't seem to bother Barbakow.
"We start from a strategy and cultural point of view that it is a regionalized (industry)," he said. "What is needed and demanded in Southern California is different than Alabama, the Carolinas . . . or South Florida."
OrNda was successful at tapping new markets like Massachusetts, and Tenet is confident its acquisition strategy and partnerships with not-for-profits will fly in other areas.
What's unclear is the role, if any, OrNda executives will play.
Charles Martin, OrNda's chairman and CEO, will be vice chairman of Tenet, but Securities and Exchange Commission documents related to the merger show it isn't likely he or other OrNda executives will play key roles in Tenet's future.
Martin, William Hough, executive vice president and chief operating officer, and Keith Pitts, executive vice president and chief financial officer, had their "noncompete clauses" voided as a result of last week's merger agreement. Thus, they are free to join or form other companies.
Although Martin, Hough and Pitts all benefited financially from the deal, Martin gained the most, netting at least $45 million in profits in vested options, unvested options and severance (See chart).
Tenet will have ample cash to compete against Columbia after completing $4.8 billion in new financing through public debt offerings and a new credit facility.
Proceeds from the $2 billion debt offering and a new $2.8 billion credit facility will be used to purchase OrNda's $1.3 billion in public debt, and repay Tenet and OrNda's existing bank debt. Tenet then expects about $2 billion to remain to fund new acquisitions.