Triad Hospitals Agrees to Go Private for $4.7 Billion
Triad Hospitals has accepted a $4.7 billion takeover offer from affiliates of CCMP Capital Advisors and GS Capital Partners, after pressure for management of the hospital chain to improve its return to investors.
Triad shareholders will receive $50.25 a share, which represents a 16% premium over the stock's Friday closing price of $43.27. Including about $1.7 billion of assumed debt, Triad said the deal was worth $6.4 billion.
Triad, which operates 54 hospitals and 13 ambulatory surgery centers, also warned that fourth-quarter results were hurt by lower collection rates on bad accounts.
CCMP Capital is a private equity firm recently spun off from its former parent, investment bank JP Morgan. GS Capital Partners is the private equity arm of investment bank Goldman Sachs.
Private equity firms have been taking a closer look at hospital companies after HCA -- the biggest U.S. hospital chain -- last year accepted a $22 billion management-led leveraged buyout.
The industry is struggling with slowing admissions and rising numbers of patients without health insurance. Some analysts have predicted that more hospital chains will go private, in part to escape the scrutiny that comes with being a publicly traded company.
Heavy debts from the uninsured patients and weak volume trends have knocked down valuations of hospital chains to levels that are attractive to private equity firms flush with cash and looking to unlock the value of hospital assets.
"We believe a significantly higher bid (for Triad) is unlikely, given that the current offer is in line with HCA's 2006 leveraged buyout" in terms of the relationship between the offer and Triad's earnings before interest, taxes, depreciation and amortization, CIBC World Markets analyst Michael Wiederhorn said in a research note.
But Robert Hawkins, an analyst with Stifel Nicolaus, on Monday said a higher offer could surface. "We believe there is room to go to $53," he said in a research note.
EBITDA is a gauge of cash flow closely watched by private equity investors, who seek strong cash flows to help pay down debt borrowed to finance their deals.
With Monday's rally, Triad shares are now trading at levels not seen since August, 2005.
Hedge fund TPG-Axon Capital Management LP has been critical of Triad in recent months for failing to generate shareholder value comparable to other hospital management companies.
The hedge fund, managed by former Goldman Sachs star trader Dinakar Singh, last week said it aimed to nominate a slate of five board directors at Triad's 2007 annual shareholders' meeting. It increased its stake in Triad to 8.87%, having spent a total of $328 million for the stock.
Other Takeover Targets?
Wiederhorn said the takeover bid was not surprising because Triad had been more candid that its rivals in discussing the possibility of going private.
He said Community Health Systems , an acute care hospital operator, could be the next target of a private takeover bid due to its conservative balance sheet.
Under the takeover agreement, Triad can solicit superior proposals from third parties during the next 40 days. During that time, CCMP Capital and GS Capital do not have a contractual right to be advised of, and are not required to match, the terms of any superior proposal.
Should any talks yield a definitive agreement with a third party, Triad would have to pay a $20 million break-up fee to CCMP Capital and GS Capital and reimburse up to $20 million of their out-of-pocket expenses.
Plano, Texas-based Triad expects to hold a special meeting of stockholders to vote on the proposed deal and will postpone its 2007 annual meeting.
Goldman, Sachs & Co., JP Morgan and Citigroup Global Markets served as financial advisers to the buyers. Lehman Brothers served as the financial adviser and delivered a fairness opinion to Triad.