Transitional Hospitals Corp. looked as if it would go to the highest bidder last week after pitting a healthcare start-up run by a legendary industry dealmaker against one of the largest long-term-care companies in the U.S.
Transitional had its choice of a $564.5 million cash offer from Rocco Ortenzio's Select Medical Corp. and a counteroffer from Vencor that upped the sale price $56.3 million to $620.8 million. At week's end, Transitional's board of directors had authorized the company to initiate discussions with Vencor on its higher offer.
In response, Select hired an outside antitrust attorney to gum up any deal between Vencor and Transitional. Apparently hoping to pique state and federal antitrust regulators' interest in a Vencor-Transitional combination, Select issued a press release late last week saying such a merger would reduce consumer choice of long-term-care providers in at least nine state.
The play for Transitional was one of three major post-acute-care deals in the news last week (See related stories, p. 12).
At the beginning of last week, Transitional signed an agreement for Select to purchase it at $14.55 per share.
But Vencor's dramatic May 7 announcement in a Wall Street Journal ad that it intended to offer $16 per share sent Transitional executives back to the boardroom. The Select agreement allowed Transitional to negotiate with other bidders and accept a better offer for a breakup fee of $19.4 million.
"Our focus, from the start, has been to do what we can to maximize value for our shareholders, and we remain committed to achieving that goal," said Richard L. Conte, chairman and chief executive officer of Transitional.
Conte said Vencor first contacted Transitional about a sale last November and made an initial offer of $11.50 per share in February. Since then, he said, Transitional has fielded calls from more than 10 other interested buyers.
Las Vegas-based Transitional, formerly Community Psychiatric Centers, operates 16 long-term acute-care hospitals and three satellite facilities in 13 states and owns a 61% interest in Nashville-based Behavioral Healthcare Corp. Last year, CPC sold its psychiatric hospitals to Nashville-based Behavioral so it could focus on long-term acute care.
Louisville, Ky.-based Vencor is the country's largest operator of long-term acute-care hospitals, with 38 such hospitals and more than 300 skilled-nursing facilities and other senior-living centers. It posted $2.6 billion in revenues in 1996. A combined Vencor-Transitional company would operate 57 hospitals and would have annual revenues of $3.3 billion.
Vencor had tried to slow the Select deal with a letter sent to Transitional the night the agreement was signed. But Transitional did not view the letter as a formal offer and decided to proceed with Select.
Vencor then pulled out all the stops. In addition to the higher cash offer, it filed suit in U.S. District Court in Las Vegas to invalidate the termination fee and agreed to increase the purchase price if the fee was invalidated or reduced.
For Select, the deal was its first major move since it was formed in March as an outpatient rehabilitation and long-term acute-care company. Ortenzio, Select's chairman and CEO, founded Continental Medical Systems, which later merged with Horizon Healthcare Corp. in 1995.