A takeover skirmish and acquisition flourish

A corporate control contest breaks out between Community Health Systems, Franklin, Tenn., and Tenet Healthcare Corp., Dallas.

Community's hostile attempt to take over Tenet begins in December 2010 but kicks into high gear in January. Community nominates a slate of directors for election to Tenet's board. Meanwhile, Tenet approves a stockholder-rights agreement to deter an unwelcome takeover attempt and also pushes its annual meeting back by six months to give the company more time to convince its shareholders that Community's offer, at the time worth $7.3 billion in cash, stock and assumed debt, undervalued Tenet.

Community and Tenet spar over the next few months, then Tenet lands the biggest—and ultimately, fatal—blow in April when it files a securities lawsuit in federal court in Dallas alleging that Community failed to disclose that it was at risk of government fraud investigations and audits over its admissions policies. Tenet alleges that Community's internal admissions guidelines, called the Blue Book, improperly favored one-day admissions over outpatient observation visits in order to wring more revenue out of Medicare.

By the following week, Community removes the stock portion of its bid, then raises it from $6 per share to $7.25 per share on May 2, raising the value of the bid to

$8.1 billion, and setting a May 9 deadline for Tenet to begin negotiations. Tenet declines, and Community rescinds its offer.

Other highlights:

• HCA and Vanguard Health Systems, both based in Nashville, make initial public offerings. HCA raises gross proceeds of $2.6 billion in its March IPO, while some of its shareholders who sold parts of their stakes raise $1.2 billion. The IPO is the third in the 43-year history of the company, one each coming after its founding and after leveraged buyouts. Vanguard, founded in 1997, raises $450 million in gross proceeds from its IPO, a bit below the range that it had initially estimated in securities filings.
• Investor-owned companies as a group struggle to convince investors of their good prospects. Hospital stocks, along with other healthcare service companies, lag behind the broader indices. Investors are concerned that patients are avoiding hospital stays and procedures because of concerns about their share of the costs and the security of their jobs. Looming over all sectors is concern that budgetary woes in Washington and state capitals will hurt reimbursements.
• Investor-owned chains also ramp up their acquisitions of not-for-profit hospitals, continuing a trend that picked up pace in 2010. In a deal valued at $525 million, Health Management Associates acquires the seven-hospital Mercy Health Partners-Tennessee in Knoxville from Catholic Health Partners, Cincinnati. In January, LifePoint Hospitals, Brentwood, Tenn., announces a joint venture with Duke University Health System, Durham, N.C., to acquire rural, not-for-profit hospitals in North Carolina and surrounding states. Duke LifePoint Healthcare completes two deals for hospitals and one for cardiac catheterization laboratories in North Carolina and has a deal in place to acquire an 80% stake in a Virginia tax-exempt hospital.