HMA stock rises amid takeover speculation, CEO's exit

Speculation is swirling about whether a change of control could be underway at Health Management Associates.

With its peers trading in the red, shares of the Naples, Fla.-based hospital operator closed up almost 4% Wednesday at $12.25 and nearly 11% higher than Friday's close. It is the largest recovery the company has had since April 10, when shares took a nosedive on first-quarter financial results that were well below expectations.

Today's upswing follows the company's announcement Tuesday that President and CEO Gary Newsome, 55, is retiring from the company to pursue missionary work in South America.

News of his departure, which is effective July 31, came just days after HMA went on the defensive to prevent a potential takeover, adopting a shareholder rights plan that will go into effect if any investor tries to acquire more than 15% of the company. HMA acted in response to Glenview Capital Management signaling that it plans to become an activist investor and filing for antitrust approval to acquire up to 75% of the company's shares—something the hedge fund later said it has no intention to carry out.

But in its sparse Schedule 13D filing, the hedge fund, which is also an investor in a number of other hospital operators, indicated that it planned to engage in discussions about “ways to enhance shareholder value,” including talks with potential partners.

At least one analyst, A.J. Rice at UBS, thought a financial investor could pay about $15 a share for HMA, or even more if it were willing to factor in the potential upside from healthcare reform next year. Rice wrote in a note to clients that Community Health Systems, Franklin, Tenn., could also emerge as a strategic buyer since it has the same non-urban focus as HMA.

In 2010, Community tried to absorb Dallas-based Tenet Healthcare Corp. but was ultimately rebuffed.

The leadership void at HMA “makes them vulnerable” to a takeover, said Brian Tanquilut, an analyst at Jefferies. The company is also trading at the discount to its peers, which opens the door for value investors.

Still, Tanquilut added that a number of uncertainties still exist for the industry, from contract pricing under health insurance exchanges to Medicaid expansion decisions. And those unknowns are likely to give pause to some of the sector's more logical acquirers, namely HMA's larger peers HCA of Nashville, Community Health Systems and Tenet.

“I'm not completely discounting the fact that the larger hospital chains could look to consolidate,” Tanquilut said. But “I can't imagine that there's anything imminent at this point. It's really hard to value a strategic acquisition today.”

Frank Morgan, an analyst at RBC Capital Markets, similarly pointed to HMA's challenges, including a high debt load and unresolved government investigations, as obstacles to a merger.

“I don't know how many people would want to step into that,” he said. “I don't see it. The likelihood of someone doing an unfriendly deal is probably pretty low.”

He added the next major event for the company will probably be the appointment of Newsome's successor, which is likely to be “more telling” about the company's strategy.