Community Health Systems has rejected a $2.4 billion buyout offer for its eight Fort Wayne, Ind., hospitals, saying Monday the proposal by physicians and private-equity players was inadequate by at least $1 billion.
The CHS board of directors met May 15 with four of the 10 Fort Wayne physicians leading the buyout and they failed to specify which assets beyond the hospitals that they wanted to buy or provide the financial backers that CHS could negotiate with specifically, CHS said in a statement Monday.
CHS was first approached about a potential buyout in November by the 10 physicians who had formed a group called Fort Wayne Physicians to negotiate a deal, CHS said.
"The physicians have failed to satisfy any reasonable criteria of a legitimate offer," CHS said in a statement.
The proposed offer of $2.4 billion was significantly below the valuations that 30 other hospitals that CHS is selling have fetched so far, the statement said.
CHS Chief Financial Officer Thomas Aaron said last week that CHS is getting for its divestitures about 12.5 times earnings before interest, taxes, depreciation and amortization.
With annual EBITDA estimated by J.P. Morgan at about $350 million at the eight Fort Wayne hospitals, the $2.4 billion offered falls more than $1 billion below that.
Chinese billionaire Tianqiao Chen, CHS's largest shareholder with a 13.7% stake in the company, said through a Shanda spokesperson Tuesday that he supports the CHS board decision. Chen's stake is owned through his Shanda affiliates.
"The management has clearly highlighted the rationale for rejecting the offer, and we are in full agreement with the decision," Shanda said in a statement.
The Fort Wayne hospitals, known as the Lutheran Health Network, are CHS' most profitable. They generate annual revenue of about $1.1 billion, J.P. Morgan estimates.
Struggling CHS has been divesting hospitals and other assets to reduce debt of $15 billion. The hospital company, the nation's second-largest investor-owned system with 155 hospitals, posted a net loss of $1.7 billion in 2016.
The buyout leaders have garnered support from at least 100 other physicians and civic leaders in Fort Wayne for their plan. They argue that the Fort Wayne operations have boosted CHS' overall finances without getting their fair share of investment from the parent company.
Just a week before the four physicians met with the CHS board last week on the eve of the company's annual shareholder meeting, CHS announced a $500 million capital-spending program for Fort Wayne to upgrade facilities and modernize equipment.
Dr. John Crawford, a radiation oncologist in Fort Wayne who is a city councilman, said the timing of the investment was suspicious because it was announced just days before the buyout group was scheduled to make its pitch in Franklin, Tenn.
In its statement, CHS said another shortcoming of the buyout group's offer was a lack of commitment to make that $500 million capital investment.