The Daughters of Charity Health System in Northern California is seeing new interest from potential suitors after Prime Healthcare Services walked away from its controversial deal to acquire the six-hospital system. But it may take a while for Prime and its founder and CEO, Dr. Prem Reddy, to recover from the implosion of their biggest attempted purchase.
Prime withdrew from the $843 million deal on March 10, citing “onerous and unprecedented conditions.” The more than 300 terms required by California Attorney General Kamala Harris filled 78 pages and, in some cases, far exceeded the original deal agreement, Reddy said in a written statement.
The acquisition would have been the largest deal to date for the 34-hospital Ontario, Calif.-based chain, which has nationwide ambitions but has grown so far by adding only one or two hospitals at a time. It also was the largest transaction ever reviewed by the California attorney general's office.
The deal would have added $1.3 billion to Prime's $2.5 billion in revenue and made it the fifth-largest investor-owned chain by revenue as it prepares for an eventual stock market listing. But its collapse signals that Prime has not convinced state regulators, elected officials and unions that its mission is to save hospitals and provide quality care.
Daughters CEO Robert Issai initially expressed anger about Prime's withdrawal, saying he strongly disagreed with Prime's position on the attorney general's conditions. He was quoted in the San Francisco Business Times warning Reddy that, “you'll probably never be approved for another acquisition in California.”
But last Thursday, two days after the deal's collapse, Issai was upbeat about the sales process. He said he's received numerous calls from interested parties and is contacting more groups that might be interested in an acquisition. “We've been pleasantly surprised about the level of interest that's out there,” he said.
The other interested parties include health systems and a major medical group that has partnered with insurers, he said. The original field from which Prime was selected included hospital operating companies and private investor groups.
Los Altos Hills, Calif.-based Daughters, which had warned of a deteriorating financial condition in its most recent earnings report, lately has seen a $90 million increase in net worth because of provider-fee revenue as well as cost-containment efforts, Issai said. It's also in a better position than it was a few months ago thanks to revenue from a California program that supports hospitals treating large numbers of Medi-Cal patients. Still, “we're not out of the woods,” he cautioned.
