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Community Health Ready for Healing

Following a big-ticket purchase, Community Health Systems (CYH - Get Report) is ready to pay down some debt this holiday season.

Late Tuesday, Community announced its first major asset sale since becoming the nation's largest publicly traded hospital chain. The Franklin, Tenn., company will shed nine hospitals, collecting $315 million in proceeds, as it seeks to rebuild its balance sheet after this year's multibillion-dollar purchase of Triad.

Community expects to turn over the hospitals to privately held Capella Healthcare by the end of January.

Community's shares were climbing 7.3% to $33.02 following the news.

The deal will trim Community's hospital count, currently at 128, by roughly 9%. It includes more facilities -- but at a cheaper price -- than some analysts had anticipated.

"The sale price is a relatively low valuation compared to that implied by the purchase price for all of Triad," observed Cowen analyst Kemp Dolliver, who has a neutral rating on Community's stock. "The package includes a mix of highly profitable hospitals and unprofitable hospitals."

Looking ahead, "additional divestitures remain possible," Dolliver added.

Critics have felt nervous about Community's ambitious buyout of Triad from the start. With that deal, Community shifted away from its proven strategy of buying rural hospitals -- which often monopolize their markets -- in small, manageable transactions.

By purchasing Triad, the company wound up with many urban hospitals facing stiff competition instead. It assumed a huge debt load, totaling more than $9 billion, to boot.

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