Tenet, LifePoint: Hospital Stock Winners
NEW YORK (TheStreet) -- The M&A action in the hospital sector is focused on Tenet Healthcare (THC) - Get Report, after it rejected a $6 per share hostile offer from Community Health Systems (CYH) - Get Report. However, LifePoint Hospitals (LPNT) was seeing derivate M&A trading action on Friday morning as a result of the Tenet-Community Health battle.
LifePoint wasn't up in the range of the 50% rise in shares of Tenet, but it was among the market's bigger gainers on Friday morning, up as much as 7% and reaching its average daily volume of trading with the first hour of the market open.
Community Health's rejected offer valued Tenet at $6 per share in cash and stock. The breakdown of the per-share consideration was $5 in cash and $1 in Community Health common stock. In trading on Friday, Tenet shares were climbing above the $6 mark on the expectation that Community Health would be raising its bid.
Community Health estimates the value of the deal at $7.3 billion, including $3.3 billion and $4 billion in net debt. The company said it initially made its offer to Tenet on Nov. 12, and that Tenet subsequently rejected it on Dec. 6.
Community Health, after opening in the red, spiked by 10% in trading by mid-morning Friday.
All the players in the hospital sectors were being bid up as a result of the M&A battle, but LifePoint was seeing more of the action for a few specific reasons.
For one, it could be viewed as a Plan B for Community Health if the Tenet deal doesn't in the end get accepted, according to at least one health care analyst. LifePoint is a logical candidate for a takeout in the hospital sector because, outside of Tenet, it's often judged as being among the worst-managed of the bunch -- though it's balance sheet is better than Tenet's balance sheet -- and it trades at a relatively low EBITDA multiple.
Health Management Associates
(HMA)
had the fourth-best gain among hospital stocks after Tenet, Community Health and LifePoint on Friday morning. HMA has had more of a run than LifePoint this year, and possibly a little less of a bang from the M&A developments as a result. HMA shares are up 31% this year, while LifePoint shares are up half that amount, or roughly 16%.
At a general trading level, a potential takeout at a higher multiple for any of the hospital stocks means that all the stocks are worth more, and LifePoint has been one of the most undervalued stocks in the sector. HMA wasn't far behind LifePoint on Friday morning through, even though it trades at a higher multiple, with a gain near 6%.
The Community Health Tenet offer values the company at 6.8 times 2010 EBITDA earnings of $1.1 billion, according to Avondale Partners. That's well below the 8 times to 9 times EBIDTA multiple in historical hospital M&A action. Specifically, Community Health paid 9.7 times EBITDA for its acquisition of Triad Hospitals in July of 2007. Over the past 9 years, the average multiple paid in hospital deals is 9.4 times earnings, according to Avondale.
LifePoint trades at a 5.9 times EBITDA.
-- Written by Eric Rosenbaum from New York.
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