HMA gets legal, financial advice on CHS takeover offer

Health Management Associates' newly elected board of directors has retained new financial and legal advisers to evaluate the $3.9 billion takeover offer from Community Health Systems. And a new filing with the Securities and Exchange Commission reveals that HMA previously engaged in merger talks with two unnamed large healthcare companies before signing the deal with Community.

HMA's shareholders last month voted to replace the hospital company's entire board after an aggressive campaign from its largest investor, hedge fund Glenview Capital Management. Glenview has stressed that it views Community's offer as a “floor” for further negotiation and that a new board would seek to improve the bid or find another suitor.

HMA's advisory team now includes Lazard Freres, UBS Securities, Alvarez & Marsal and law firm Paul Weiss Rifkind Wharton & Garrison. The chain had previously worked with Morgan Stanley and law firm Weil Gotshal & Manges to help sell the company.

The Naples, Fla.-based chain also said that Community agreed to amend the merger agreement to allow it to tap its new financial advisers. Darren Lehrich, an analyst at Deutsche Bank, said in research note that Community's consent is a “positive sign that (both parties) are collaborating to complete a transaction.”

Community on Wednesday also filed long-awaited merger documents with the SEC.

The filing reveals that the Franklin, Tenn.-based chain may have been the first party to take an interest in HMA but was not the only one. Discussions between Community and HMA began in late 2012 and became more serious in the first quarter. In May, a “large healthcare company,” referred to in the filing only as “Party A,” also expressed interested in HMA, but talks unraveled in mid-June.

In addition, eight other parties—described as smaller hospital operators, private equity firms and strategic buyers, including another large healthcare company, Party B—also contacted Morgan Stanley about acquiring HMA.

Other than Community, Party B was the only company to enter into a confidentiality agreement with HMA, but by mid-July Party B also told Morgan Stanley it was no longer interested in a deal.

After Party B dropped out, Community and HMA went back and forth on the offer price, before finally agreeing to a cash and stock deal of $14.50 per share.

If a competing bid surfaces and the deal falls apart, HMA will be on the hook to pay a $109 million termination fee to Community. HMA also agreed to pay a $40 million “fixed expense reimbursement obligation” if the deal fails to get the required 70% approval in a shareholder vote.

While an amendment to the merger agreement allows HMA's new advisers to review the deal, their opinion must be given prior to Nov. 19. Community said in its initial deal announcement that it expects to close the transaction in the first quarter of 2014.

Follow Beth Kutscher on Twitter: @MHbkutscher