Since Community Health Systems (NYSE:CYH) announced its $5.1 billion buyout for Triad (NYSE:TRI) earlier this week, the former firm's shares have fallen nearly 10%. While it's not an unusual deal, the buyout stands out because it broke up Triad's pending purchase by CCMP Capital Advisors LLC and Goldman Sachs (NYSE:GS) Capital Partners. By analyzing the proxy statements, investors can gain a few interesting perspectives on the transaction.
Triad's stock fell from $42 to $39 back in mid-October, after the company announced that earnings would fall below Street estimates. Hedge fund TPG-Axon Capital subsequently bought a 6.2% position in Triad, indicating that it wanted management to make swift changes to improve the stock price; it suggested cutting back capital expenditures and acquisitions, and diverting that money into stock buybacks.
Why sell? The proxy provides a laundry list of reasons. The worrisome trends for acute-care hospitals collecting bad debts may be the most interesting motivation. It's an inevitable consequence of the growing number of uninsured citizens.
The proxy statement also contains Lehman's (NYSE:LEH) valuation, which includes analysis of companies like Health Management Associates (NYSE:HMA), Lifepoint Hospitals (NASDAQ:LPNT), and Tenet Healthcare (NYSE:THC). Their multiples range from 8 times EBITDA to 10.8 times EBITDA, compared with Triad's 10 times EBITDA.
True, combining Triad and Community Health Systems will create a powerhouse company, with nearly $10 billion in revenues and 130 hospitals in 28 states. Yet any positive effect on earnings could take two years to kick in, as management tackles the challenges of systems integration, consolidation, upgrading hospitals and dealing with the issues of debt collection.
Triad, at least, no longer needs to worry about such things. For the most part, it appears that the company's management struck a pretty good deal for its shareholders.
Further Foolishness, stat:
Fool contributor Tom Taulli, author of The Complete M&A Handbook, holds no financial position in any companies mentioned above. The Fool has a disclosure policy.
