NEW YORK (TheStreet) - Some industries are simply poised to consolidate and there's money to be made on those prospects, whether it's banking in the 1990s, railroads in the 2000s or the current healthcare and wireless sectors.
When a recent bout of healthcare and wireless merger mania runs its course, Glenview Capital Management and Paulson & Co. are poised to emerge as the two hedge funds that best identified consolidation trends in both industries, and profited to the tune of billions of dollars.
Tenet Healthcare's (THC) Monday acquisition of Vanguard Health Systems (VHS) at a 70% premium, for instance, stands out as just the latest multi-billion dollar merger in a healthcare industry reshuffle, as providers brace for the impact of the Affordable Care Act (ACA), which was mostly upheld by the U.S. Supreme Court about a year ago.Expecting a wave of consolidation as hospitals, outpatient facilities, healthcare providers and pharmacy benefit managers merge, Glenview has made the sector its biggest bet in a stock portfolio that exceeds $10 billion, according to Bloomberg data. The fund's two top holdings are leveraged to the healthcare sector. Seven of the Larry Robbins-run Glenview top-10 holdings are in the healthcare space, which is expected to grow dramatically in the wake of ACA, commonly known as 'Obamacare.' Life Technologies (LIFE) is Glenview's biggest bet, helping the fund to a significant profit after the genetic sequencing machinery specialist was acquired by Thermo Fisher Scientific (TMO). The deal comes as manufacturers such as Life Technologies and Illumina (ILMN) work to build lower-cost sequencing machines that can be used in individual cancer treatment. Glenview's second-largest holding, hospital network Health Management Associates (HMA), has become subject to takeover speculation and is impacted by Monday's proposed merger between Tenet and Vanguard Health Systems. After Glenview took a near 15% stake in Health Management, the hedge fund rebuffed notions it would look to acquire the $4 billion acute care hospital network outright. Instead, Health Management Associates may play into the hedge fund's expressed post-'Obamacare' expectation of healthcare industry consolidation. Glenview's stakes in McKesson (MCK), Tenet, Community Health Systems (CYH), Humana (HUM) and HCA Holdings (HCA) are the fund's other healthcare investments among its top-10 holdings. Glenview is also an investor in Cigna (CIG), Thermo Fisher Scientific (TMO), Walgreens (WAG) and Hospira (HSP). In 'Obamacare,' healthcare insurance coverage is expected to dramatically expand and impact states such as Texas that lag the nation in overall coverage. For hospital chains, the increase in coverage may mean an expansion into new markets, while it could also lead to a reduction in bad debt expense. The legislation has sent ripples across the healthcare industry. Some estimate that between 16 million to 20 million new Americans will be eligible to enroll in Medicaid through 'Obamacare,' a change that's already prompted the merger of WellPoint (WLP) and Amerigroup (AGP) and a tie-up between Aetna (AET) and Coventry Healthcare (CVH). Pharmacy benefit managers such as Express Scripts (ESRX), CVS Caremark (CVS) and Walgreens, meanwhile, have used mergers to expand their networks in anticipation of changes to the cost structure of prescription drug plans. Glenview is positioned for further consolidation of the healthcare sector, as 'Obamacare' kicks in and impacts sector-wide earnings and strategy. The fund's bet is most similar to one put on by John Paulson-run Paulson & Co. in the consolidating wireless industry, as also-ran carriers such as Sprint (S), T-Mobile (TMUS), Leap Wireless (LEAP), Clearwire (CLWR) and MetroPCS seek strategic partners to grow their wireless subscribers and compete against AT&T (T) and Verizon (VZ).
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