Despite plans to cough up more than $2 billion in cash to complete one deal and shore up its stock price, Columbia/HCA Healthcare Corp. executives said last week the pending payout won't affect the company's acquisition and expansion activities.
And to punctuate that point, the Nashville-based hospital chain separately unveiled plans to link with two more acute-care facilities, one of them a prominent teaching hospital (See related stories, p. 16).
Of the more than $2 billion in question, some $1.1 billion will come from Columbia's restructured cash offer to acquire Value Health, an Avon, Conn.-based benefits management company. Under the original deal, announced in January, Columbia intended to acquire Value Health through a stock swap then valued at $1.3 billion (See box).
"Clearly, this is a signal that the board of Value Health didn't feel comfortable with the big negative pall hanging over Columbia with an FBI investigation," said Ken Lauden, managing director at Hambrecht & Quist, a San Francisco investment banking firm.
In the weeks following federal agents' March 19 raid on Columbia's facilities in El Paso, Texas, the company's stock took a beating that drove down the price it was going to pay for Value Health (March 24, p. 3).
"It would have been difficult for Value Health to take the Columbia stock," Lauden said. "The cash is the next best thing given Columbia's unpredictable environment."
While agreeing to accept Columbia's cash offer, Value Health turned down a more lucrative stock bid from MedPartners, a Birmingham, Ala.-based physician practice management company. Value Health's board rejected MedPartners' $1.2 billion all-stock offer, citing "current volatility in the equity markets" among other reasons.
Until last week, it was unclear which other companies had been interested in Value Health. A proxy statement filed in February with the Securities and Exchange Commission said Richard Scott, Columbia's chairman and chief executive officer, upped his offer at the beginning of this year to best two other bidders (March 3, p. 40).
Value Health confirmed MedPartners was one of those bidders and that MedPartners' $1.2 billion stock offer was "in all material respects a reconfirmation" of a proposal the PPM company had made prior to Value Health's Jan. 15 decision to be acquired by Columbia.
The name of the other bidder has yet to be disclosed by any of the parties.
The new Columbia-Value Health deal still needs approval from Value Health's shareholders. The deal is expected to close sometime in the second quarter of this year.
Columbia's decision to offer the cash didn't do much for New York-based Standard & Poor's Corp., which revised its credit outlook for Columbia to negative from stable. It didn't appear as though Standard & Poor's was optimistic about Columbia's future in the near term. "Aggressive use of debt to finance growth plans or a material negative judgment or settlement with the federal government could lead to a lower rating in the next three years," Standard & Poor's CreditWire said.
The other $1 billion in cash to come out of Columbia's coffers, meanwhile, will be used for a stock repurchase program the hospital chain announced last week. Columbia said the repurchased shares will be "held as treasury stock" and be available for general corporate purposes.
The company said it intends to repurchase $1 billion of its common stock from time to time in the open market. It said the time frame for the stock repurchase program will depend upon market conditions. The stock buyback represents about 5% of Columbia's outstanding shares.
"We can repurchase $1 billion in stock and pay approximately $1.1 billion in cash to purchase Value Health shares," Scott said, "while continuing our ongoing program of reinvesting significant amounts of capital in our local communities."
At deadline, the stock repurchase plan, which was announced April 15, seemed to be having the desired effect of helping boost the price of Columbia's stock along with a slight improvement in the overall stock market. Columbia's stock closed at $35.50 per share April 17, up more than 13% from $31.38 at the close April 14-the day before the repurchase program was unveiled.