Hospital operator Tenet Healthcare Corp. (THC), which is fighting off a hostile bid from its larger rival Community Health Systems Inc. (CYH), says that not only will it be posting solid 2010 results, but it is also poised for further growth and value creation in 2011.
As we all know, Community Health's takeover bid of $6 per share for Tenet, was made public on December 9, 2010. The offer equates to an enterprise value of about $7.3 billion, including $3.3 billion of equity and about $4 billion of net debt. The news sent Tenet's stock soaring 57% to $6.75 the following day.
Tenet rejected the bid saying it is being grossly undervalued and that the offer fails to reflect Tenet's prospects for continued growth and shareholder value creation. Tenet says that Community Health is ill-prepared to integrate and operate Tenet.
However, Community Health appears to be fully committed to completing this strategically and financially compelling transaction. So much so that Community Health intends to nominate a slate of director candidates to stand for election at Tenet's 2011 Annual Meeting of shareholders, scheduled for November. Tenet, on its part, has adopted a "poison pill" plan to defend itself against the hostile takeover.
Presenting at an investor conference on January 11, Tenet highlighted its fourth quarter preliminary performance and EBITDA outlook. The company is slated to reports its Q4 and full year-2010 results next month.
According to Tenet, in Q4, inpatient and outpatient year-over-year volume trends both improved relative to Q3. Inpatient admissions declined by 2.0% in Q4, compared to a 3.5% decline in Q3. Outpatient visits in Q4 increased by 2.9% in sharp contrast to a 2.0% decline in Q3.
Excluding California Provider Fee, EBITDA for 2010 is now estimated to be $1.050 billion, up from its previous outlook of $986 million to $1.036 billion. The California Provider Fee is imposed by the California Hospital Association on general acute-care hospitals to garner funds that will be used to obtain additional federal Medicaid dollars. Since the requirements for California Provider Fee to be recognized were not met by year-end 2010, it is excluded in last year's numbers.
The company has forecast 2010 revenue of $9.2 billion, compared to $9.01 billion in 2009.
Looking ahead to 2011, Tenet expects EBITDA to range between $1.150 billion and $1.250 billion, including the California Provider Fee.
The company says it has delivered solid same-hospital EBITDA growth, outpacing its largest peers in eight out of the last 15 quarters. In sharp contrast, Community Health's same-hospital admissions have declined year-over-year every quarter for the past two years, and its same-hospital EBITDA margin has essentially been flat since late 2008, according to Tenet.
Tenet's EBITDA margin, which was 8.1% in 2007, increased to 8.6% in 2008 and 10.9% in 2009. For 2010, the company expects an EBITDA margin of 11.4% and is targeting an EBITDA margin of 16%-18% by end of 2015. The company attributes its significant margin expansion to cost control initiatives and improved pricing.
In light of the improving outpatient/inpatient mix, significant cost savings extracted from productivity and other efficiency initiatives, economic recovery and the expanding insurance coverage - aided by the Affordable Care Act, Tenet believes that the interests of its shareholders would be better served by benefiting from 100% of the upside inherent in Tenet rather than accepting Community Health's inadequate proposal. According to analysts, Tenet may fetch a higher bid, given its growth prospects.
Community Health CEO Wayne Smith says he is determined to acquire Tenet but he has made known that he is not willing to raise the offer price. Tenet's CEO Trevor Fetter has said it is premature to say if the company is for sale.
It remains to be seen how things are going to pan out.
Will Smith boost Tenet's takeover price? Will Fetter sign on the dotted line if offered top dollar?
Stay tuned...
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.