Recently,there is a mega takeover bid of HCA which has a record bid of US$32.7 billion (plus debts). A consortium of a trio private equity group vide leverage buy-out has persuaded HCA’s to go private in view of HCA’s lackluster results,continuing gloomy future results and intense industry competition. This is at least avoid the extreme public scrutiny. However,if this deal succeed with the leverage buy out, the fear is that HCA will be unnecessarily burdened with hugh debts which they have to repay eventually.

What’s interesting is that this deal is supposed to the biggest since an earlier mega bid in 1988. Read on the details.

As reported By Reuter (Mon Jul 24, 2006 8:03pm ET )
 

The purported deal:

HCA Inc which is the No. 1 U.S. hospital chain, on Monday agreed to be acquired by an investor group for about $21 billion. If debt included, the whole would be US32.70 billion ($11.7 billion debt); The buyer group is proposing to pay $US51 a share in cash for HCA, or the equivalent of a 6 per cent premium to HCA’s share price on Friday. HCA closed up $1.61 or 3.4 percent to $49.48 on the New York Stock Exchange.

If this takeover bid is successful this would narrowly exceed that of Kravis Roberts(KKR)’s 1989 acquisition $25.07 billion agreement to buy tobacco and food industry giant RJR Nabisco in 1988, according to research firm Dealogic. KKR assumed $6 billion in debt for that deal. Incidentally, this deal has a legendary status in the history of US finance and inspired the book Barbarians at the Gates.

About HCA:

• HCA was set up in the mid-1960s by Thomas Frist, an eminent Tennessee doctor, and his son, Thomas Frist Jr. The company grew rapidly, was floated in 1969 before being taken private in 1988 through a $US5.1 billion leveraged buyout;  
•    

  HCA, located at Nashville, Tennessee floated agin in 1992;

   

• HCA operates 92 surgery centres and 550 home care agencies in addition to 176 hospitals, floated again in 1992 and has remained a public company since. The surgeries are based in 23 countries, including Britain and Switzerland.

The rationale for the sale of HCA might be due to its poor results which was badly hit by bad debts from unpaid hospital bills and the intense competition from doctors’ practice.
A reflection of HCA’s recent 2nd Quarter results:

Net profit fell to $295 million or 72 cents per share from $405 million or 90 cents per share a year earlier. Second-quarter revenue increased to $6.4 billion from $6.1 billion. Same-facility revenue gained 6 percent. Bad debt expense totaled $677 million, or 10.6 percent of revenue, compared with $541 million, or 8.9 percent of revenue, in the prior year.

Buyout Group & Advising Bank to HCA:
The trio private equity member consortium buyout group includes KKR, led by financiers Henry Kravis and George Roberts, Bain Capital, the buyout unit of Merrill Lynch, and members of the family of Senate majority leader Bill Frist, who founded HCA.
Incidentally, Merrill Lynch, which has a long-standing relationship with HCA, brought the idea of a leveraged buyout to HCA. Merrill is the lead adviser to the buyout group on the deal.
The Investment bankers for HCA are Credit Suisse and Morgan Stanley who are advising the special committee formed to consider the offer, which has a 50-day shop-around period to solicit other bids.
 

General trend:
The boom in private equity deals in the last 18 months is being fueled by low interest rates, frothy debt markets and record amounts of investor money moving away from lackluster equities into buyout funds.
Analysts have said going private could afford troubled hospitals the chance to heal themselves without pressure from Wall Street.  

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