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The Deal: Community Health Bids $7.6B for Florida Rival

Stocks in this article: CYH HMA

NEW YORK ( The Deal) -- Hospital operator Community Health Systems (CYH), seeking to bulk up in the face of health care reform, said Tuesday, July 30, it would acquire smaller rival Health Management Associates (HMA) in a deal valued at $7.6 billion cash, stock and debt.

Terms of the deal call for Franklin, Tenn.-based Community to pay $10.50 in cash and 0.06942 of its shares for each Health Management share for total consideration of $13.78. The offer price is about 7.6% below Health Management's Monday close of $14.92, and would value the equity of the Naples, Fla.-based target at about $3.9 billion.

The deal also provides Health Management investors with a contingent value right that could pay them as much as $1 per share in additional value based on the outcome of certain legal matters. Health Management, which has been under legal scrutiny over billing practices since 2011, said Tuesday it had received additional subpoenas regarding certain emergency room operations.

Post-deal, Health Management holders would own about 16% of the shares of the combined company, which would own or operate 206 hospitals in 29 states, with more than 31,000 beds.

Community Health chairman and CEO Wayne T. Smith in a statement said that the deal would create a company with a diverse portfolio of hospitals that is "well positioned to realize the benefits" of health care reform and other industry changes.

"Our complementary markets and the ability to form networks in key states, along with the synergies that will be available to us, can create value for the shareholders of our companies, the communities we serve, our employees and medical staffs," Smith said. "We look forward to working with the physicians and employees of HMA to advance the commitment shared across both organizations to pursue clinical excellence and to deliver quality care for patients."

Health Management, which was under pressure from 14.6% investor Glenview Capital Management to seek a buyer, has been evaluating options since late 2012. Company chairman William J. Schoen in a statement said that the deal is priced above other health care deals in terms of its multiple to trailing cash flow, and marks a "significant premium" to the company's share price prior to word of a potential sale was made public.

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