The rising value of psychiatric hospitals was demonstrated again as Ar-dent Health Services agreed to sell its 20 psychiatric hospitals to Psychiatric Solutions for $500 million in cash and $60 million in Psychiatric Solutions stock, the companies said.
For Nashville-based Ardent, the sale would complete the transformation of the former Behavioral Healthcare Corp. into an acute-care hospital company. The makeover began in 2001 when Welsh, Carson, Anderson & Stowe bought a majority interest in the company and hired former Columbia/HCA Healthcare Corp. executive David Vandewater to run it, adopting the name Ardent. "This is a new and tighter focus for our company," Vande-water said on a conference call with investors and analysts.
Ardent said the sale would allow it to retire debt and pay for capital projects, which Vandewater said include a $50 million hospital in the Tulsa, Okla., area and $45 million in expansions of cardiovascular services in the Albuquerque and Tulsa markets. Ardent said its 14 acute-care hospitals, which would remain with the company, generate about $1.8 billion in annual revenue.
Franklin, Tenn.-based Psychiatric Solutions said the deal would make it the largest provider of inpatient psychiatric services in the country, with 54 psychiatric hospitals. The 20 hospitals in the deal generate about $300 million in annual revenue, Psychiatric Solutions said. Standard & Poor's said it is considering a downgrade for the company's debt ratings of B+ for its corporate rating and B- for its subordinated debt because the ratings agency expects the company to take on significant debt to finance the deal.
Universal Health Services is sure to take note of the terms of Ardent's deal, which is expected to close in the second quarter, perhaps by the end of April, subject to regulatory approvals. UHS said recently that it believes investors are undervaluing its stock, and one way to realize some of the value of the company would be a spin-off or sale of some of its 44 psychiatric hospitals (March 7, p. 18). The company has acknowledged considering such a move, along with other options such as expanding its share repurchase program, to generate better returns for investors.
The success that Psychiatric Solutions has had in the last year, as its stock doubled, has prompted some observers of UHS to wonder if the company would be better served to divest some or all of the psychiatric hospitals. At the same time, UHS has faced pressure on its 25 acute-care hospitals as competition from a physician-owned hospital in McAllen, Texas, wounded the company's operations there. Moreover, a new report from the analysts at SG Cowen & Co. indicates that UHS' competitors are expanding more, relative to population growth, than the competitors of investor-owned chains Community Health Systems, HCA or Triad Hospitals.