December 5, 2020

DealBook: Community to Convert Tenet Bid to All Cash

7:51 a.m. | Updated with Community and Tenet Statements

Community Health Systems announced on Monday that it will convert its $3.3 billion bid for Tenet Healthcare into an all-cash offer, in an effort to sidestep potential complications of a lawsuit filed by its unwilling target.

Community will convert its bid to $6 in cash from $5 in cash and $1 in stock.

The move is a response to a lawsuit filed by Tenet last week in federal court in Dallas, accusing Community of overbilling Medicare through improper patient admissions procedures.

Tenet argues that the takeover offer misleads its investors, since its proposed cost savings are built on fraudulent numbers. In its lawsuit, Tenet has asked the federal court to require Community to restate its public financial statements about the merger and lower its estimates for potential cost savings.

Community has called the lawsuit baseless, though on Friday it disclosed that it had been subpoenaed by the Health and Human Services Department for potentially improper billing of Medicare and Medicaid.

Still, by converting its offer to all cash, Community is seeking to erase the basis of Tenet’s lawsuit. Since Tenet shareholders would receive only cash, they would not suffer the potential financial and legal consequences that would affect Community even if it did win the takeover battle.

“Converting our offer to all cash underscores our commitment to completing this transaction and renders Tenet’s irresponsible and inaccurate lawsuit irrelevant to our offer,” Wayne T. Smith, Community’s chief executive, said in a statement. “We are confident that our business practices are appropriate and we will respond in detail to Tenet’s claims in due course.”

Tenet said in a statement that its board was reviewing the revised offer, though the company added that it had previously rejected the $6-a-share price as too low.

The battle between Community and Tenet has been long and often contentious, even before the lawsuit was filed. The same day that Community publicly announced its takeover bid in December, Tenet said in a statement that it had already reviewed the proposal and dismissed it as “opportunistic.”

Since then, Community has moved to replace Tenet’s board with its own nominees, in part to remove a “poison pill” that limits shareholders from gaining more than a 4.9 percent stake in the company.

But deal-makers have said that Tenet’s lawsuit is among the most aggressive takeover defenses they have seen. The day that the lawsuit was filed, shares in hospital operators plummeted.

Community’s stock tumbled nearly 36 percent that day, to $25.89. While shares in the company have risen since then, closing on Friday at $31.90, they remain well below their price on April 8.

Meanwhile, Tenet’s own stock fell 15 percent on the day the lawsuit was filed, to $6.44.The company’s shares closed on Friday at $6.66.

Community is being advised by Credit Suisse, Goldman Sachs, the law firm Kirkland Ellis and the proxy solicitor D.F. King.

Article source: http://feeds.nytimes.com/click.phdo?i=556930f121f4f1bb4ba94ea9ae2881f6

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