Room for negotiation?

Community Health Systems faces pressure to sweeten its $3.9 billion cash and stock bid for Health Management Associates, with HMA's largest shareholder calling it too low.

But, in an interview, Community Chairman, President and CEO Wayne Smith said, “We have done our due diligence and we think it's a fair and compelling value.”

Community's offer comes after a period of turmoil at HMA, which has faced lower-than-expected earnings results, multiple government investigations and negative media coverage of its admissions practices.

In May, hedge fund Glenview Capital Management, a formerly passive HMA shareholder, started pressing for a change of control. Its actions sparked HMA to adopt a shareholder rights plan, a defensive maneuver against a hostile takeover, and ultimately boosted share prices to their 52-week high.

Glenview is in the midst of a consent solicitation process to install eight new directors to HMA's board. The hedge fund, which holds 14.6% of HMA's shares, said in a written statement that it considers Community's offer a “floor” for further negotiation. “It is difficult to assess whether the value offered in the Community proposal represents full and fair value or represents the price offered by an opportunistic acquirer to a distressed seller.” Glenview also owned 9.6% of Community's shares as of March 31.

Glenview has 60 days from July 19 to get approval for its slate from 50.1% of shareholders. Community will have about 60 to 90 days to get 70% of shareholder approval for its offer, Smith said.

Community's offer values HMA at $13.78 per share, representing a 25% premium over HMA's share price before Glenview's actions caused the stock to rise. Shareholders could also receive a contingent value right of up to $1 per share, or about $270 million, depending on the resolution of HMA's government investigations.

HMA's shares, which closed at $14.92 the day before the takeover announcement, reached a 52-week high of $17.28 as recently as July 10.

In a conference call announcing a deal, Smith noted that HMA investors own about 60% of Community's stock.

Community and HMA emphasized that interest in the merger deal predated Glenview's actions, with discussions starting in late 2012, according to William Schoen, HMA's board chairman.

Follow Beth Kutscher on Twitter: @MHbkutscher