Triad Hospitals isn't paying enough for Quorum Health Group, and Quorum should reopen the bidding, according to a shareholder lawsuit filed against Quorum's board of directors and Triad.
The lawsuit alleges that Quorum's directors breached their fiduciary duties by agreeing to sell Quorum to Triad without doing all they could to seek higher bids, and that Triad helped them clinch the deal.
Quorum shareholder Samuel Brand filed the lawsuit Oct. 20 in state circuit court in Nashville on behalf of all Quorum shareholders. Triad disclosed the suit last week in its quarterly filing with the Securities and Exchange Commission.
Dallas-based Triad last month signed a definitive agreement to buy Quorum, a Brentwood, Tenn.-based hospital chain, for $2.4 billion in cash, stock and the assumption of debt (Oct. 23, p. 2).
The consolidation of the two companies would create the third-largest hospital chain in the country with 53 owned and 210 managed hospitals.
Consummation of the merger would lead to "irreparable injury" to Brand and other Quorum shareholders, the complaint alleged.
According to the complaint, the defendants did not take measures to maximize shareholder value and, in fact, deterred higher offers from other potential buyers by not releasing positive quarterly financial information about Quorum until after Triad and Quorum signed and disclosed the sale agreement.
The plaintiff is seeking an injunction to prevent the sale until Quorum performs some kind of auction to explore higher bids for the company. In addition, the complaint seeks unspecified compensatory damages if the acquisition is completed, as well as costs and attorneys' fees.
"The lawsuit is without merit," said Quorum spokeswoman Shea Davis. "The defendants intend to defend themselves vigorously against the suit."
In Triad's SEC filing, the company said the lawsuit's claims were without merit.
"We're proceeding as planned with the transaction," said Triad spokeswoman Patricia Ball.
A Quorum director named as a defendant in the lawsuit, S. Douglas Smith said he was not familiar with the lawsuit's details. Smith is a principal at Evergreen Investments and Management in Nashville.
"All I know is, we used a very thorough due-diligence process to consider all the options," he said. "I have no discomfort with the steps we took to make sure we did the best thing for the shareholders."
The Quorum directors and Triad have until Nov. 28 to file a response, said Lee Barfield, of the law firm Bass Berry and Sims in Nashville, who is representing the Quorum defendants.