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Triad Takes New Deal

Community Health makes it an offer it can't refuse.

Now

Community Health

(CYH) - Get Report

and

TST Recommends

Triad

(TRI) - Get Report

have wedding plans.

Community has agreed to pay $54 a share for Triad -- topping a leveraged buyout offer of $50.25 a share for the company -- in a deal valued at $6.8 billion. Community, best known as a rural hospital operator, is now set to emerge as the largest publicly traded hospital company in the country.

"This deal will substantially increase

Community's overall scale and enhance its geographic diversity," Community CEO Wayne Smith said on Monday. "This is a strategic growth opportunity."

Sheryl Skolnick, senior vice president of CRT Capital Group, thought Triad might attract another suitor. She has, therefore, maintained her buy recommendation on Triad's stock throughout a so-called go-shop period that has now drawn to a close.

Still, Skolnick was surprised by the latest development. She points out that Community could have chosen to bid on

LifePoint

(LPNT)

-- another rural hospital operator in its own neighborhood -- instead of seeking out a larger hospital chain in a different part of the country.

To Skolnick, LifePoint looks like one of few hospital companies that could still attract a buyer. HCA has already gone private in one of the biggest LBOs ever. Meanwhile,

Health Management Associates

(HMA)

has pulled off a financial restructuring -- complete with significant amounts of debt-- that essentially serves as a poison pill for would-be suitors. And

Universal Health

(UHS) - Get Report

can pursue a deal only if its leaders, who control the company's voting stock, wish to do so.

That leaves

Tenet

(THC) - Get Report

, which is burdened by heavy debt levels and weak earnings before interest, taxes, depreciation and amortization.

"I have a rhyme" for that company, Skolnick says. "There are none so blind as those who will not see all that debt and very little EBITDA at THC."

Tenet has so far generated no clear interest from hungry private equity buyers. The company could, however, attract a new leader. With Community buying Triad, experts say, current Triad CEO James Shelton could be hunting for a job -- and fielding offers at companies, such as Tenet and HMA, with perceived leadership problems.

Meanwhile, UBS analyst Kenneth Weakley feels that Triad will fare better with Community executives in charge.

"CYH is no ordinary bidder," Weakley insisted on Monday. "CYH's management is, in our view, the most disciplined in the business -- a fact which (in theory), with added leverage and assets to sell, would appear positive for the story."

Weakley portrays Community as the only stock worth buying in the entire hospital group. His firm has investment banking ties to Community and several other hospital companies.