In a case of great timing, the Federal Trade Commission blessed HealthSouth Corp.'s $1.7 billion acquisition of Horizon/CMS Healthcare Corp. last week, just one day before the companies' shareholders approved the sale.
The deal closed without HealthSouth having to enter an antitrust settlement with the FTC despite the fact that the agency had been investigating the sale for months.
Such an agreement often restricts the future business activities of the parties involved in the deal.
The purchase secures HealthSouth's position as the nation's largest operator of inpatient rehabilitation hospitals, upping its total by 29 to 128. It also increases the number of HealthSouth outpatient rehabilitation clinics to more than 1,000.
The deal between Birmingham, Ala.-based HealthSouth and Albuquerque-based Horizon/CMS, announced in February, was expected to close June 30. But the FTC issued a second request for information about the deal. The agency's antitrust concerns focused on the deal's impact on competition in the northeast Tennessee market where Horizon/CMS operated 60-bed Northeast Tennessee Rehabilitation Hospital in Johnson City and HealthSouth owned 50-bed HealthSouth Rehabilitation Hospital in nearby Kingsport.
On Oct. 22, a week before the deal's Oct. 29 closing date, Horizon/CMS signed a definitive agreement to sell its 50% interest in the Johnson City facility to Nashville-based Columbia/HCA Healthcare Corp., which owns the other 50% stake in the hospital.
The FTC then gave early clearance to the deal on Oct. 28, and the acquisition was completed the next day.
HealthSouth said the sale of the Tennessee facility was completed before the closing of the merger.
The sale led the FTC to clear the deal without requiring the companies to sign a consent agreement. Such an agreement provides a public, written promise by the parties involved to comply with certain requests made by the FTC to address federal antitrust concerns. A consent agreement also requires public hearings and a formal FTC review to ensure that the parties have complied with the agency's requests.
Robert Leibenluft, head of the FTC's healthcare antitrust enforcement division, said the agency typically requires parties to a merger or acquisition to sign a consent agreement when they have not been able to address the agency's concerns before closing. Leibenluft said a consent agreement was not needed in the HealthSouth-Horizon/CMS deal because the companies were able to find a buyer for the facility that troubled the agency.
"There was something here that bothered us, but they ended up fixing it before they consummated the deal," he said. "At the time the deal closed, Horizon no longer had a facility in Tennessee. There wasn't an overlap that would cause us to be concerned."
HealthSouth and Horizon/CMS had to put out another fire before they could complete the deal.
The companies faced an 11th-hour attempt by a small Florida nursing home operator to block the deal.
On Oct. 23, Judge Ted Coleman of the 9th Judicial Circuit of Osceola County, Fla., issued a temporary restraining order to prevent the completion of the deal in response to a motion for an injunction filed by Orlando, Fla.-based Southern Oaks Health Care.
Southern Oaks and Horizon/CMS each own half of a nursing home in Kissimmee, Fla. Southern Oaks alleged that it would lose its first right to purchase Horizon/CMS' stake in the facility if HealthSouth bought Horizon/CMS.
After reviewing the Oct. 24 testimony of two HealthSouth executives delivered via telephone, Coleman dissolved the order Oct. 27. The next day he denied Southern Oaks' request for a temporary injunction to stop the acquisition.