Tenet has estimated previously that it will spend $620 million to achieve meaningful use and will receive $320 million in federal subsidies. Tenet also is now estimating that achieving meaningful use will avoid penalties with a present-day value of $315 million.
The company said it would benefit from an improving economy and, from 2014, the healthcare reform law. Tenet estimated the Patient Protection and Affordable Care Act would boost inpatient volume by 7.5% and outpatient volume by 5%.
Several stock analysts raised their estimates for Tenet's future earnings based on the detailed forecast. They also provided some valuations for the company. Community's bid is for $6 per share in cash and Community stock and the assumption of $4 billion in Tenet's debt, for a total value of $7.3 billion. Any acquirer of Dallas-based Tenet would have to pay off the debt in some form.
John Ransom, a healthcare stock analyst with Raymond James & Associates, wrote in a research note that Tenet's forecasts suggest the net present value of the stock could be $8 to $10 per share. At $8 per share, the total value of the deal would be nearly $8.5 billion, including assumed debt. At $10 per share, the total value would be about $9.6 billion.
Kemp Dolliver of Avondale Partners wrote that Tenet's forecast added about $1 per share to his previous estimates, for a present value of $9 to $10 per share for the company. Dolliver wrote that he thinks a deal with Community is possible at $8 or $9 per share.
Other analysts were less optimistic. Justin Lake of UBS wrote that Tenet's guidance for 2011 was actually pretty conservative, with most of the growth in EBITDA coming in later years and based mostly on the impact of reform.
Gary Lieberman of Wells Fargo Securities pointed out that while Tenet's EBITDA has grown at a compound annual rate of 16% since 2004, its stock has declined at a compound annual rate of 11.4% in that period. As a result, he said, there is no guarantee that the stock price will improve even if EBITDA growth accelerates. Lieberman estimated that a buyout of Tenet would net its shareholders between $6.50 and $7.50 per share.
Speaking at a healthcare investors conference last week, Wayne Smith, president, chairman and CEO of Community, underlined his company's will to complete the deal. He repeated its plan to nominate a slate of directors for Tenet's board, even though Tenet has pushed its annual meeting back to November. Later, Franklin-Tenn.-based Community announced a slate of 10 nominees and four alternates. Tenet's refusal so far to negotiate “does not discourage me at all in this,” Smith said. “We're in this for the long haul.”
“The price is $6. We may be overpaying, who knows? We have not done a due diligence on this company whatsoever,” Smith added. “But we would love to have the opportunity to have a conversation—maybe there is something golden here that we don't know about.”
Community's most likely tactic is to try to lure Tenet into a negotiation over the price, said Brian Quinn, an assistant professor in corporate law at Boston College Law School. It is risky for Community to have its offer on the table indefinitely, Quinn said.
Tenet's move to adopt a shareholder rights plan, or a “poison pill,” to deter a takeover is a typical response, he said. The type of poison pill—one designed to protect the tax shield of its previous net operating losses—has become increasingly common in the past couple of years, he said.
In an interview, Trevor Fetter, president and CEO of Tenet, said the presentation was aimed at filling a seasonal vacuum of information for investors between the reporting of third-quarter and year-end results. “The whole valuation of our industry has been low—below average, below five-year and 10-year averages,” Fetter said. “Part of addressing that is to give investors information to see our growth prospects, our profitability prospects and the prospects of the industry as a whole.”
“We've never said that the company could not be sold,” Fetter added. “What we've said is the company can't be stolen.”