Two for-profit hospital companies that focus on rural areas and small metropolitan markets have emerged as the likely bidders for 10-hospital Baptist Health System in Birmingham, Ala.
Either company-Triad Hospitals or Health Management Associates-probably would have to pay upwards of about a half-billion dollars for Baptist, a not-for-profit that ranks as the largest healthcare system in the state, sources say.
"It's going to be a premium deal," said Joshua Nemzoff, president of Nemzoff & Co., a New Hope, Pa.-based consulting company that specializes in hospital mergers and acquisitions. "This hospital system could have a fairly extraordinary price tag."
Earlier this year, after Baptist tapped Merrill Lynch & Co. to analyze the system's strategic alternatives, three investor-owned chains expressed at least mild interest in a deal. They were Ardent Health Services and Vanguard Health Systems, both based in Nashville, and Santa Barbara, Calif.-based Tenet Healthcare Corp. Nemzoff has worked with Ardent on many of its major deals.
Since then, Nemzoff and others have indicated that the two finalists in the bidding for Baptist appear to be Plano, Texas-based Triad, which owns or operates 49 hospitals, mostly in small cities and certain high-growth urban markets; and Health Management, Naples, Fla., which has 39 hospitals, almost exclusively in rural areas of the South and Southwest.
The two chains, without necessarily denying interest in the acquisition of Baptist, would not comment on any pending deal.
Triad spokeswoman Martha Crombie said the company would not respond to rumors.
Health Management spokesman John Merriwether said, "We're looking at a number of hospitals throughout the country, and we may or may not be looking at (Baptist)."
Nemzoff suggested that the Baptist acquisition would represent a departure for either of the companies for two key reasons-their traditional market profiles and the sheer size of the deal involving the sprawling system, which President and Chief Executive Officer Dennis Hall has said is worth about $700 million.
Baptist's board of trustees will meet June 18 to consider bids from the investor-owned companies. It also will consider other options, including a reorganization or merger with UAB Health System or with four-hospital Baptist Health in Montgomery, Ala.
Unlike other not-for-profits sold recently, Baptist isn't in desperate financial straits. For the fiscal year ended June 30, 2002, it posted a net loss of about $5 million on revenue of $695.3 million. Hall has said the system isn't generating enough profit to underwrite much-needed capital improvements.
"This is not a troubled hospital," Nemzoff said. "There's no reason this needs to be sold. They've got all the strong points a not-for-profit should have-they're big, they've got a good market share and a fairly good operating margin."
Nemzoff expressed surprise that such a comparatively healthy system was even considering a sale and said he believes the board ultimately will back away from any deal with an investor-owned company. The deal also could be complicated by intense opposition from scores of doctors who signed petitions last month calling for Hall's ouster (May 19, p. 32).
"I don't think it'll happen," Nemzoff said.