It took more than a year, but two merger decisions – one completed and one rebuffed – ultimately led to the sale of TeamHealth.
The Knoxville, Tenn.-based physician staffing giant Monday announced it will be taken private and bought for $6.1 billion by the Blackstone Group.
TeamHealth's board of directors has recommended that shareholders approve the buyout at $43.50 per share. A vote is being readied “as soon as practicable.”
TeamHealth is the nation's largest physician staffing company with about 19,000 employed physicians and annual revenue of more than $4 billion.
Leading up to the Blackstone announcement, TeamHealth management and its board spent more than a year trying to dig themselves out from under a pair of fateful merger decisions.
The completed merger—the $1.6 billion purchase of IPC Healthcare in November 2015, has been a drag on earnings from the get-go. TeamHealth management has admitted that it struggled to integrate IPC, which provides physicians to post-acute facilities, with TeamHealth's traditional business of supplying contract emergency room doctors, hospitalists and specialists to acute-care hospitals.
The debt-financed deal also caused TeamHealth's long-term debt to balloon from $737 million before the transaction to $2.4 billion after.
An incomplete merger also proved disastrous. Last October, TeamHealth's management and board rejected a $7.6 billion cash-and-stock merger bid from rival AmSurg that almost immediately raised the ire of shareholders, said Richard Close, healthcare analyst for the Nashville office of securities firm Canaccord Genuity.
The TeamHealth board argued that the bid undervalued the company.
However, just as TeamHealth was completing the IPC deal, the healthcare sector was hit by lower volumes at hospitals that flattened after a deluge of new patients who gained coverage through the Affordable Care Act.
In addition to problems with integrating IPC, TeamHealth's own earnings began to deteriorate and have yet to fully stabilize. “It was almost a perfect storm,” Close said.
Meantime, TeamHealth shares that traded at $59.71 on Nov. 10 had plunged by half nearly on Feb. 9, to $33.56.
That collapse drew in bargain-hunting hedge fund Jana Partners before the end of February. The company demanded three board seats to right the course of TeamHealth's “missteps” by the board and management.
Jana ultimately got the seats and worked to replace long-time CEO Michael Snow in September with Leif Murphy, the former chief financial officer of hospital chain LifePoint Health.
Now Jana is selling at a profit its 8% TeamHealth stake to Blackstone.
Blackstone's $43.50 offer, even at an 18% premium over TeamHealth's $36.85, still pales in comparison to $60 per share that sold when TeamHealth's board shot down the AmSurg deal.
TeamHealth posted net income in its second quarter of $18.8 million, or $0.25 diluted net earnings per share, compared with net earnings of $28.9 million, or $0.39 diluted net earnings per share, in the second quarter of 2015.
Meantime, Nashville-based AmSurg has moved onto a merger with Envision Healthcare, a deal that will create a physician staffing company of $8.5 billion in revenue, or twice the size of TeamHealth. The companies have cleared regulatory hurdles and are expected to complete the deal later in November.