HCA Investors Get a Parting Gift

It's probably good for shareholders in HCA (NYSE: HCA  ) that the hospital operator has accepted a leveraged buyout agreement -- announced today -- worth a total of $33 billion. For simply on the basis of the earnings that the company also reported today, things aren't going that well right now.

In the deal, a consortium of investors including Bain Capital, KKR, the family of Senate Majority Leader Bill Frist, and Merrill Lynch will pay $51 a share to take this company private, as well as assume about $11.7 billion in debt. That's a modest premium of about 6% to Friday's close, but it's a nice double-digit premium to the prevailing prices before word broke of a possible deal on the way.

It's also likely a fine premium relative to where the stock might have traded given today's earnings. Revenue was up more than 4% on an as-reported basis and up about 6% on a same-facility basis, but profits were down from last year, and bad debt continues to grow -- making up more than 10% of revenue this quarter versus about 9% last year.

I didn't like these shares back in May, and I think the market would have continued to prove me right had these meddling kids not gotten involved and bought the company. Moreover, take a look at some other companies in this sector today -- such as Tenet (NYSE: THC  ) , LifePoint (Nasdaq: LPNT  ) , and Triad (NYSE: TRI  ) -- and it seems that folks aren't exactly expecting a wave of merger-and-acquisition activity to hit the space.

And why should they? Bad debt is a problem across the sector, as are cost pressures from managed-care companies such as UnitedHealth (NYSE: UNH  ) , device companies such as Medtronic (NYSE: MDT  ) , and trained medical personnel who want to be paid commensurate with their experience, education, and value. Oh, and let's not forget that wealthier folks with good insurance can just pop over to AmSurg (Nasdaq: AMSG  ) and have procedures done if they don't want the risk of hospital-acquired infection.

So, intrepid HCA investors, take your cash and be glad for the premium. Other investors -- think long and hard before plunking down money into the hospital sector; it's just not an easy place to make money these days.

For more healthful Foolishness:

UnitedHealth is aMotley Fool Stock Advisorrecommendation. If you're looking for some great investing ideas, give Tom and David Gardner's market-beating newsletter service a try with a 30-day trial subscription.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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10/26/2016 1:30 PM
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