Updated from 8:33 a.m ET with afternoon share prices and additional analyst comments
NEW YORK ( TheStreet) -- Tenet Healthcare (THC - Get Report) is buying Vanguard Health Systems (VHS - Get Report) in a deal that further consolidates the U.S. healthcare industry in the wake of the passage of the Affordable Care Act (ACA), which was mostly upheld by the U.S. Supreme Court about a year ago.
Tenet's proposed acquisition of Vanguard Health Solutions values the hospital network at $21 a share, or roughly $1.8 billion, and comes at a 70% premium to the company's Friday closing share price. Monday's deal values Vanguard at $4.3 billion when including Tenet's assumption of $2.5 billion in the company's debt.
The deal indicates that the healthcare industry is consolidating on multiple fronts in the wake of the ACA, commonly referred to as 'Obamacare.'Tenet's acquisition of Vanguard focuses on the sprawling U.S. hospital and healthcare practice industry, which is quietly in the throes of consolidation, according to industry sources. The company will expand its total base of hospitals to 79 and its number of outpatient facilities to 157, the company said in a statement. Vanguard Health Solutions will also further diversify Tenet into states such as Texas and increase the company's overall footprint to 16 states. Tenet highlights states such as Texas should see a fast rising base of customers in the wake of 'Obamacare,' in a Monday press release. Analysts have noted the Act may increase the number of users of hospitals and outpatient facilities, while also reducing companies' bad debt expense, given an expected increase in overall healthcare coverage nationwide. States previously lagging in coverage may see the biggest change. Vanguard Health Systems shares were rising over 69% in pre-market Monday trading to $20.96, just below Tenet's offer price. Tenet shares were rising nearly 4% to $43.42 a share, indicating investor comfort with the debt and premium attached to its acquisition. Private equity giant Blackstone Group (BX) is Vanguard Health Systems largest shareholder, with a 37.9% stake in the company's outstanding shares, according to a May 31 Securities and Exchange Commission filing. Vanguard shares have struggled after a June 2011 initial public offering, however, Monday's deal values the company's shares about 17% above its IPO price. "This acquisition will take Tenet into new geographic markets, expand the breadth of our service offerings, diversify our earnings sources and increase the benefits we expect to realize under healthcare reform," Trevor Fetter, Tenet chief executive, said in a statement. Vanguard could boost Tenet Healthcare's 2014 earnings per share by up to 10% given synergies expected in the merger, according to Deutsche Bank analyst Darren Lehrich. With all synergies realized, Tenet's earnings per share could grow by up to $5.65 a share, the analyst said in a client note. In the past year, Tenet's shares have gained over 100%, as investors brace for healthcare industry consolidation and the earnings impact of 'Obamacare.' "