Tenet completes $1.8 billion acquisition of Vanguard

(Story updated at 3:45 p.m. ET.)

Tenet Healthcare Corp., Dallas, has completed its $1.8 billion acquisition of Vanguard Health Systems, Nashville.

“We've been planning for this day for a long time,” Tenet President and CEO Trevor Fetter said. “We begin in earnest in a couple of weeks, digging in on our strategy.”

The deal, which closed earlier than expected, creates a system with 77 acute-care hospitals, five health plans and six accountable-care organizations, according to Tenet. It also bolsters Tenet's strength in the key state of Texas and adds population health management capabilities to one of the country's largest investor-owned hospital chains.

Tenet also hopes to extract greater profitability from Vanguard's hospitals through the services of Conifer Health Solutions, its revenue-cycle management subsidiary.

The $4.3 billion purchase price also includes the assumption of $2.5 billion in Vanguard debt. Tenet in early September issued $2.8 billion in senior unsecured and $1.8 billion in senior secured bonds to refinance its existing debt obligations and help fund the acquisition.

Tenet's shares dropped about 4% after the debt issuance, which at least one analyst attributed to investors who had been expecting Tenet to finance the deal with some bank debt rather than entirely with bonds. Moody's and Fitch Ratings also assigned “junk” ratings to its proposed notes.

But Fetter said the company took a long-term view of the refinancing and the historically low borrowing rates. “It was a tremendously successful refinancing,” he said. “It was widely oversubscribed.”

Tenet will now look ahead to integrating Vanguard's hospitals into its portfolio. Fetter said the entire Vanguard leadership team has joined Tenet, and the combined company plans to move forward on completing pending acquisitions and finding new ones.

Vanguard has signed letters of intent with three hospitals in Connecticut, and Fetter denied that the merger has slowed momentum on those deals. “There's a relatively complicated regulatory process in Connecticut—but that's nothing new,” he said.

Fetter also expressed confidence in the combined company's plan to move forward on more risk-based contracting, including new accountable care organizations. Vanguard operates one of the 32 Pioneer ACOs through Detroit Medical Center, and the network was one of only 13 to see shared savings in its first year.

“Between Vanguard and Tenet, we probably have more experience than many,” Fetter said. “I believe that you have to have wider scale. I think it's a dangerous thing for smaller hospitals and regional systems to do it alone.”

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