This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Tenet to Buy Vanguard Health amid 'Obamacare' M&A Frenzy

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) 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.'

"[We] do not see any significant [Federal Trade Commission] concerns in getting the deal approved," A.J. Rice, a UBS analyst, wrote in a Monday note.

Already a lot has happened in the industry, as major players across the healthcare spectrum position for dramatic change in coming years.

Leading up to the passage of the act, pharmacy benefit managers such as Express Scripts (ESRX), CVS Caremark (CVS) and Walgreens (WAG) have used mergers to expand their networks in anticipation of changes to the cost structure of prescription drug plans.

Healthcare provider Cigna (CIG) even bought HealthSpring in a push into the pharmacy benefits space, while other players have sought to bring prescription drug benefit plans in house, challenging the revenue of consolidators such as Medco Health Solutions. Medco was acquired by Express Scripts in one of the industry's largest-ever mergers.

Healthcare providers have also been hard at work trying to position for a rapid change to Medicare and Medicaid as 'Obamacare' kicks in over the next 12-to-18 months. At around the act's passage and affirmation by the Supreme Court, WellPoint (WLP) and Amerigroup (AGP) merged, followed shortly thereafter by a merger between Aetna (AET - Get Report) and Coventry Healthcare (CVH).

There are likely more deals to come.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
VHS $0.00 0.00%
AET $115.18 1.43%
DVA $75.44 0.43%
THC $47.82 0.02%
WLP $136.01 1.43%

Markets

Chart of I:DJI
DOW 16,374.76 +23.38 0.14%
S&P 500 1,951.13 +2.27 0.12%
NASDAQ 4,733.4970 -16.4820 -0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs