Community Health Systems, Brentwood, Tenn., said last week that it signed a letter of agreement to begin exclusive negotiations to buy seven rural hospitals from Methodist Healthcare, Memphis, Tenn.
Pending a definitive agreement and regulatory approval, the investor-owned chain would acquire the west Tennessee hospitals-with 676 beds total-and outpatient and ancillary facilities, which had revenue of $140 million in 2001. Methodist would retain its 10-bed Methodist Healthcare-Fayette Hospital in Somerville, Tenn., Methodist officials said. The system operates 14 hospitals serving eastern Arkansas, north Mississippi and west Tennessee.
While the purchase price has not been disclosed, Frank Morgan, an analyst with Jefferies & Co., Nashville, estimates it to be about $140 million.
"These hospitals could represent an earnings home run for Community as the hospitals will undoubtedly benefit from focused management attention after serving primarily as referral hospitals for Methodist Healthcare's larger hospitals in Memphis and Jackson," Morgan wrote in a research report. LifePoint Hospitals, Brentwood, made similar changes to its hospitals after the company was spun off from HCA, Nashville, Morgan wrote.
In a written statement, Methodist Chief Executive Officer Gary Shorb said the sale would allow the not-for-profit system to focus on becoming a "major academic research hub" in the region. In March, Methodist formed an affiliation with the University of Tennessee Health Science Center, Memphis.
Community Health Chairman, President and CEO Wayne Smith said six of the seven facilities are the sole hospital in their communities, and the deal would bring the chain's total number of Tennessee hospitals to 11.
Methodist and Community Health expect to have all agreements completed and approved by year-end, Methodist officials said. Community Health operates 61 hospitals in 21 states and is set to acquire 108-bed Memorial Hospital of Salem County, Salem, N.J.