Glenview Calls Community Health's $3.6B Deal for Health Management 'Floor Value'

NEW YORK ( TheStreet) -- Hedge fund Glenview Capital Management is not supporting Community Health Systems ( CYH) $3.6 billion proposed acquisition of Health Management Associates ( HMA) and instead characterizes the deal as a "floor value" for shareholders as it continues to press management change.

Glenview said it will continue to press a slate of board directors to replace H.M.A's existing management instead of supporting the proposed merger announced early Tuesday morning.

"Glenview believes that the Community Proposal establishes an important floor value for HMA shareholders to evaluate," the firm said in a Tuesday statement.

"Given the management turnover and deterioration of performance under the sitting Board we believe it is imperative that shareholders promptly replace the sitting Board with the Fresh Alternative nominees."

The hedge fund says that with the support of adviser Alvarez & Marsal it would effect operational change, better compliance, stronger financial forecasting, and the consideration of additional strategic alternatives to go with Community Health's proposed acquisition.

Glenview's comments indicate the firm believes it can garner takeover interest for H.M.A beyond Community Health, potentially increasing the value of the company to shareholders.

In arguing for support of its board directors, Glenview also pointed to H.M.A's weak earnings performance in recent quarters, the disclosure of a Department of Justice inquiry into its patient admission practices and a lack of experience among top company executives.

Still the firm did call Tuesday's proposed deal an "important step" for H.M.A shareholders.

Earlier on Tuesday, Community Health said it would pay $10.50 a share in cash and 0.06942 of a share for each share of H.M.A, valuing the company at about $13.78 a share, based on Monday's closing stock prices. H.M.A shareholders will also receive a contingent value right worth up to $1 a share if the hospitals network can resolve legal issues tied to its patient admission practices.

H.M.A's proposed sale to Community Health values the firm's shares at $3.6 billion and comes amid a merger wave among hospital and health care giants. Whether shareholders approve the deal, however, remains uncertain.

About 70% of H.M.A's shareholders need to approve Community Health's acquisition for the deal to pass.

In late 2012, Glenview Capital Management became a top H.M.A shareholder and has campaigned for the company to consider strategic alternatives such as a sale. The hedge fund also recently proposed a slate of board directors to replace the company's existing management.

Glenview is giving investors 60 days to submit votes on H.M.A's board directors and disclosed the plan on July 18. Because H.M.A did not put a go-shop period in place, Glenview would likely have to win its board ouster to consider alternatives to Tuesday's Community Health deal.

As part of the merger, H.M.A said it has ended a strategic review it began earlier in 2013. The company also said it has named John M. Starcher interim CEO to replace William J. Schoen.

While Glenview Capital Management may not support terms of Tuesday's merger as attractive for H.M.A shareholders or the company's strategic review as particularly successful, it nonetheless may stand to benefit from the deal. Glenview is Community Health's top shareholder, according to Bloomberg data, with a near 10% stake.

In Tuesday trading H.M.A shares fell nearly 11% to $13.30. Community Health shares fell 3.49% to $45.58.

For Glenview, even an unattractive merger may prove to be a large windfall. H.M.A shares have gained over 100% in 2013, amid speculation the company could be an acquisition target as hospitals use consolidation to position for the implementation of the Affordable Care Act or "Obamacare." Community Health shares, meanwhile, have gained over 50% year-to-date.

Prior to Tuesday, H.M.A shares have gained over 100% in 2013, amid speculation the company could be an acquisition target as hospitals use consolidation to position for the implementation of the Affordable Care Act or "Obamacare." Community Health shares, meanwhile, have gained over 50% year-to-date.

Expecting a wave of consolidation among hospitals, outpatient facilities, health care providers and pharmacy benefit managers, Glenview has made the sector its biggest bet, according to Bloomberg data.

Glenview's Obamacare M&A Bet

-- Written by Antoine Gara in New York

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