So the IPO was for more shares and at the top of the price range. HCA sold 87.7 million of the shares for gross proceeds of $2.63 billion, which it will use, net of the costs of the IPO, to pay down debt. The shareholders sold 38.5 million shares for gross proceeds of $1.15 billion.
Moreover, as previously disclosed, the selling shareholders—primarily the three private-equity firms that led the leveraged buyout of HCA in November 2006—could sell additional shares to the investment banks that performed underwriting services for the IPO. Originally expected to be about 18.6 million additional shares, the investment banks' option increased to 18.9 million shares because of the higher initial sales. If they take the full number of shares, that would gross another $568 million for the selling shareholders.
Altogether, if the option is fully exercised, the total gross proceeds for the company and the selling shareholders would be nearly $4.35 billion.
HCA's IPO is one of two major events that has driven up stock prices for investor-owned hospital companies, according to Jeff Villwock, a managing director of Genesis Capital in Atlanta. Community Health Systems' unsolicited $7.3 billion bid to acquire Tenet Healthcare Corp. is the other, Villwock said.
Thanks to these developments, “Money managers today own more hospital stocks than they did a year ago. No question about that,” Villwock said. “Money managers are looking at this industry. The profits have been good. Acquisition activity is up for the first time really in several years.”
The offering also might hearten private-equity managers and their investors. HCA's IPO is the largest by value ever made on a U.S. stock exchange, topping deals made in January and February, according to Renaissance Capital, Greenwich, Conn.
Villwock said he advised his clients to purchase shares of HCA and bought some himself March 10, the first day of trading in the company's shares on the New York Stock Exchange. “This is the ‘Big Daddy,' if you will, of the hospital industry,” Villwock said, adding that the company has performed better since its leveraged buyout than he expected.
The underwriters are almost assuredly going to exercise their full option to purchase additional shares, Villwock said, because the shares of HCA traded above $30 from the very first trade on the NYSE. Nearly 64.6 million shares of HCA were traded on March 10, with the stock closing at $31.02, even as the NYSE Composite Index was down 2.1%. Shares of HCA closed at $31.12 on the following day. All trading figures are from Quote.com.
After 180 days, the private-equity firms—Bain Capital, the private-equity arm of Bank of America Corp., and Kohlberg Kravis Roberts & Co.—as well as other shareholders, including the Frist family and current and former executives, will be eligible to sell more of their shares on the open market, according to a securities filing.
The underwriters can agree to end this “lock-up period” earlier than 180 days if the shareholders request it, Villwock said, but he doubts the shareholders will be looking to sell soon, thanks to the returns they reaped in the IPO and $4.11 billion in dividends the private-equity firms and the Frist family collected last year (Feb. 28, p. 8).
The Frists were in line to sell far fewer shares than the private-equity firms, according to securities filings. If their shares increased at the same 1.77% rate that the offering as a whole grew, then the Frists would sell approximately 749,129 shares, with gross proceeds of $22.5 million, if the underwriters took full advantage of their option. The family contributed $980 million in shares and cash to the leveraged buyout in 2006.