In need of financing to build a $58 million replacement hospital, Memorial Health Systems, Ormond Beach, Fla., has agreed to a takeover by Adventist Health System.
The proposed deal, and a separate lease being negotiated, would give Winter Park, Fla.-based Adventist control of four of the seven hospitals and 41% of the acute-care beds in Volusia County on Florida's east coast.
Adventist's sole competitor in the county would be Port Orange, Fla.-based Halifax-Fish Community Health, which runs the county's three other hospitals.
"We were initially disappointed because we had been attempting to open some discussion with the Memorial board ourselves to talk about some cooperative ventures," said John Evans, Halifax-Fish spokesman. "We're disappointed they didn't see fit to come to the table and talk to us" before the decision.
The noncash acquisition of four-hospital Memorial by 32-hospital Adventist is expected to close Aug. 31. State and federal regulators must clear the deal.
Richard Lind, Memorial's president and chief executive officer, said the system will file for federal antitrust clearance.
"We don't see any significant problem with that," said Lind, who will be leaving the system.
As part of the deal, a new 15-member board made up of eight community representatives, two Memorial officials and five Adventist representatives will oversee the former Memorial hospitals in Volusia and Flagler counties. The Memorial hospitals will keep their names and operate as a division of Adventist.
Lind said no money is exchanging hands in the deal. However, Adventist will assume Memorial's $81 million in outstanding debt, as well as more than $180 million in assets, said Richard Reiner, executive vice president of Adventist's Florida division.
A new $4 million not-for-profit foundation also will be created to focus on fund-raising and support for the former Memorial hospitals.
Lind said Memorial approached Adventist about merging, and serious discussions between the two began about six weeks ago. "The access to capital is our prime motivator," Lind said.
Memorial has certificate-of-need approval to build a $58 million replacement facility for its 81-bed Memorial Hospital-Flagler in Bunnell, Fla.
But Lind said Memorial's ability to borrow money for the project was questionable because of the system's $81 million in outstanding debt. Memorial also expects to generate a net income of only $1.6 million on total revenue of $512 million for the fiscal year ending Sept. 30, he said.
Merging with Adventist provides the "credit enhancement" needed to secure financing on the bond market for the Flagler hospital project, Lind said.
Lind said Adventist was the natural choice as a merger partner because the two systems have participated in joint ventures on cancer treatment and a 5,000-member HMO that covers Adventist and Memorial employees in Flagler and Volusia counties.
Currently, Memorial has three hospitals in Volusia County and one in Flagler County.
Memorial bought one of those Volusia County hospitals, 119-bed Memorial Hospital-Peninsula in Ormond Beach, last year from Nashville-based HCA-The Healthcare Co. for almost $14 million (Nov. 1, 1999, p. 26).
In March, Memorial announced plans to terminate a 40-year lease it has with the West Volusia Hospital Authority for 130-bed Memorial Hospital-West Volusia in De Land, Fla.
Adventist is negotiating with the hospital authority to take over that lease.
Adventist, which operates in nine states, only has one Volusia County hospital, 97-bed Florida Hospital Fish Memorial in Orange City.
Adventist's lease negotiations for the De Land hospital predate Memorial's merger talks with Adventist, Lind said.