Now comes the hard part. After announcing their company's proposed $2.4 billion purchase of Quorum Health Group, Triad Hospitals executives began a cross-country trek to learn about their new hospitals, who runs them and who practices medicine within their walls.
The trip, which will continue for at least another three weeks, might also help Triad decide which Quorum hospitals to keep, which ones to sell and what markets, if any, might present antitrust issues. The companies have not yet filed for antitrust clearance but do not foresee problems, said a Triad spokeswoman.
The two companies' hospital markets are geographically complementary, with Triad's emphasis more in the Southwest and Quorum's more in the South and Southeast (See map).
Taken together, the two companies' largest markets are Texas, with 15 hospitals and 23% of total revenue; Indiana, with six hospitals and 14%; and Alabama, with five hospitals and 13%, according to a Triad presentation for investors.
The two for-profit hospital chains announced last month that Dallas-based Triad has agreed to buy Brentwood, Tenn.-based Quorum for $1.4 billion in cash and stock and the assumption of $1 billion of Quorum debt (Oct. 23, p. 2). The sale should close in March 2001.
Triad will probably shed five to seven of the combined company's estimated 52 owned and leased hospitals, some of which may be Triad's, said James Shelton, the company's chairman and chief executive officer, in a conference call with Wall Street analysts last week. Quorum owns or leases 22 hospitals and Triad owns 31, but Triad is closing down a hospital in San Diego in January.
Shelton confirmed that Triad plans to divest--either through a sale or a spinoff--Quorum's hospital management business, Quorum Health Resources, which manages more than 200 hospitals.
"We're going to work hard over the next four to six months to get the Quorum transaction completed and hopefully be able to handle the divestiture issues in a way which dramatically improves not only the hospitals and surgery centers going forward, but also strengthens our balance sheet and allows us to control the leverage position of the company in a way we can all feel comfortable with," Shelton told analysts.
Shelton also indicated that Triad is likely to handle the hospital divestitures similarly to its recent two-hospital purchase from privately held NetCare, a financially troubled Nashville chain. In that transaction, Triad bought three hospitals from NetCare and, in a simultaneous transaction, sold one of them to Health Management Associates, of Naples Fla. (July 3, p. 22).
Shelton indicated he hopes to sell whichever Quorum and Triad hospitals don't fit the combined company's profile at the same time Triad closes the deal to buy Quorum.
A source close to the negotiations said Triad is likely to sell more rural, isolated hospitals not in markets where the companies have heavy concentrations.
Quorum's 160-bed Unimed Medical Center, in Minot, N.D., is a possible sale candidate, analysts have speculated.
One company that initially looked into buying Quorum will consider buying the hospitals that Triad puts up for sale. Kirk Gorman, chief financial officer of King of Prussia, Pa.-based Universal Health Services, acknowledged that his company came to the table when Triad was already in serious negotiations with Quorum. UHS has a joint venture with Quorum in Las Vegas.
"We would certainly look at individual hospitals that are currently owned by Quorum and might be owned by Triad," Gorman said.
A group of not-for-profits is still waiting in the wings, too, said a source who asked not to be identified.
Shelton began his Quorum tour with stops in Fort Wayne, Ind., and Dothan, Ala. In the fiscal year ended June 30, these two markets accounted for 34% of the revenue generated by Quorum's owned hospitals and 52% of its cash flow.
Hospital administrators in both markets came away from the meetings believing their facilities will be keepers.
"The tone and tenor was very upbeat," said Keith Granger, president and CEO of 235-bed Flowers Hospital, in Dothan. "It's certainly my assumption that Flowers would be a very important market they would want to retain."
Granger said Shelton, accompanied by Quorum's president and CEO, James Dalton, met with physicians and the executive team.
Geoff Thomas, media coordinator at the Lutheran Health Network in Fort Wayne, which encompasses Quorum's integrated delivery system in northeast Indiana, also had a positive response.
"We left those meetings well-informed and pretty positive about how things are going to progress," he said. "We've been given every reason to believe Triad has as positive an outlook on this market as Quorum did."