Although it's moving forward on a merger with Mercy Healthcare Arizona, Phoenix-based Samaritan Health System said it received an unsolicited buyout bid from Columbia/HCA Healthcare Corp.
The Columbia solicitation was quickly rebuffed, Samaritan officials said last week.
Columbia declined to comment on whether the offer was made.
"I don't think there was any great surprise Columbia made an offer; it would seem likely given their (interest in) this market," said Dan Green, Samaritan's vice president of system development. Green would only say the offer came "a short time ago."
Both Columbia and Tenet Healthcare Corp. were in talks with Samaritan last year when the system sought potential partners. It rejected offers from both companies. Samaritan announced the deal with Phoenix-based Mercy last November, only days after a proposed merger with HealthPartners of Southern Arizona, Tucson, fell through.
Industry observers said Columbia's bold overture reflects its commitment to penetrating more deeply the fast-growing Phoenix market. Columbia also recently announced it was studying the feasibility of building a 60-bed, $35 million hospital in the Phoenix suburb of Mesa.
In addition, observers said Columbia's bid for Samaritan indicates some curiosity about the time Samaritan has taken to complete the Mercy deal, which Green said is not expected to close until at least midsummer. The Columbia offer raises the question of whether Samaritan's deal with Mercy is the best direction for the debt-laden system, which would control slightly more than a third of the Phoenix market if the transaction is completed.
While Samaritan and Columbia are being tight-lipped about the terms of the offer, local media estimated the value of such a deal at around $700 million, based on the traditional six to seven times earnings before interest, taxes, depreciation and amortization, the formula typically employed to valuate hospitals. If true, that amount would be more than enough to retire Samaritan's debt and endow a not-for-profit foundation with up to $400 million.
"That deal with Mercy doesn't fund a charitable organization, and it doesn't pay off the debt, (which doesn't) make a lot of economic sense," noted Timothy B. Barton, moderator (the equivalent of chairman) of the board of directors for Columbia Medical Center Phoenix. The Columbia deal "would put them on sounder financial footing," he said.
Samaritan has $340 million in debt, and it lacks a not-for-profit foundation, Green confirmed. But he did note that Mercy's parent company, San Francisco-based Catholic Healthcare West, has such favorable bond ratings that Samaritan would be able to significantly reduce its debt-servicing costs.
"(The media) did their own valuation of Samaritan, and I have tried to make it clear what we are talking about doing with Mercy is a consolidation, not a buyout," Green said.
"This isn't strictly economic," he added. "We went through an extensive options process in 1996. We looked especially at maintaining local control and the value of our non-profit status. We felt when all was said and done, working with Mercy and CHW was the best option."
Indeed, the dilemma faced by Samaritan is illustrative of what many hospital systems face when seeking partners or buyers, according to James Orlikoff, a Chicago-based governance consultant.
"This is exactly what so many boards are going through right now, balancing the short-term fix vs. maintaining community control," he said.
Once completed, the Samaritan-Mercy alliance will create a statewide network of six acute-care hospitals and four specialty facilities. It will employ 14,000 people and generate $1.5 billion in annual revenues.