Dart frog defense

10 Dec 2010 By Robert Cyran Follow @rob_cyran

The U.S. hospital operator pulls out many arguments in rejecting a $3.3 bln hostile bid from rival Community Health. The most unusual: our past performance has been so ghastly that you’ll be sorry if you buy us and you can’t pay enough either.

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Community Health Systems made public a $3.3 billion, or $6 a share, hostile offer to acquire Tenet Healthcare on Dec. 9. The bid is composed of $5 of cash and $1 of stock. That is a 40 percent premium to where the hospital chain's shares closed on Dec. 9. Community would also assume $4 billion of net debt associated with Tenet.

Tenet's board rejected the offer. It claims the offer grossly undervalues the company; Community's shares are overvalued and undesirable (partially due to aggressive revenue recognition); the combination would be overleveraged; and Community Health might have problems meeting government oversight stemming from a settlement relating to alleged Medicare fraud by Tenet.

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