In introducing the deal, Community's President and CEO Wayne Smith praised HMA's “very attractive portfolio” of hospitals and “complementary” geographic footprint, which will allow it to form regional health networks similar to what it has done with eight-hospital Commonwealth Health in Pennsylvania.
HMA has been under pressure from Glenview since May, when the hedge fund filed for regulatory approval to acquire up to 75% of the company. But Glenview has said all along that it didn't plan to move forward with its own acquisition and is currently in the midst of a consent solicitation process to replace HMA's nine-member board.
But William Schoen, who has chaired HMA's board since 1986, said on a conference call introducing the deal that the two systems started discussions around a tie-up in late 2012. He also described the deal as the culmination of a strategic review process that looked a range of options.“This is a case of the whole being greater than its parts,” he said.
The deal requires antitrust as well as state and local approvals, as well as the approval of 70% of HMA's shareholders. Smith said on the call that there is wide overlap in each system's shareholders, and HMA investors own about 60% of Community's stock. Glenview itself owned 9.6% of Community's shares as of March 31.
Community and HMA have overlaps in 15 states. Larry Cash, Community's CFO, declined to comment on the possibility of divestitures on the call.
HMA also announced that its second-quarter earnings would reflect a 12% increase in observation stays and a 6.7% decline in same-hospital admissions, as well as a 2.4% drop in adjusted same-hospital admissions, which takes outpatient activity into account.
The embattled company also disclosed that it recently received an additional subpoenas from HHS' inspector general's office regarding its emergency room operations and physician relationships.
Under the deal, shareholders of HMA could also see a contingent value right of about $270 million, or up to $1 per share, depending on the resolution of government investigations.
HMA also said that departing CEO Gary Newsome would be replaced on an interim basis by the company's Eastern Group President John Starcher Jr., effective Aug. 1. Newsome previously announced he would leave the company in order to take a leadership position in Uruguay with the Church of Jesus Christ of Latter-day Saints.
The negative news on earnings and ongoing investigations echoed similar disclosures from Community Health Systems.
Community this morning also reported its second-quarter results, including what Smith described as its “first significant earnings miss since the third quarter of 2006,” reflecting a 5.7% decrease in same-facility admissions and 2.6% decrease in adjusted admissions compared to the same period last year.
Follow Beth Kutscher on Twitter: @MHbkutscher