updated 8/16/2004 10:31:28 AM ET 2004-08-16T14:31:28

LifePoint Hospitals Inc., a operator of acute care facilities in rural areas, said Monday that it agreed to acquire Province Healthcare Co. for about $1.125 billion in cash and stock in a transaction expected to close in the first half of 2005.

Shares of LifePoint fell sharply on the news, dropping nearly 10 percent, or $3.11, to $29.63 in pre-market activity on the Nasdaq National Market.

Under the agreement, Province stockholders will receive $11.375 in cash and between 0.2917 and 0.3447 LifePoint shares for each Province share held, depending on Lifepoint's stock price. Province stockholders will own about 30 percent of the merged company.

Based on LifePoint's stock price of $32.74 and Province's price of $13.61 at the close of trading Friday, LifePoint said it would pay about $565.4 million in cash and issue 17.1 million shares, giving Province shares a 66 percent premium at $22.66 per share. Including assumed debt, the deal is worth a total of $1.7 billion, LifePoint said.

LifePoint said the merger would create a health-care company managing 50 hospitals with combined revenues of $1.7 billion in 2003, and expects the acquisition to increase 2005 earnings by 3.5 percent. LifePoint expects the deal to result in cost savings of $15 million to $18 million per year.

The acquisition has been approved by the directors of both companies, and is pending shareholder and regulatory approval.

LifePoint Hospitals said it received a commitment from Citigroup Global Markets to finance the cash consideration for the acquisition, to refinance Province Healthcare's existing debt and to provide for ongoing working capital and general corporate needs of LifePoint Hospitals. The commitment provides for up to $1.325 billion in term loans and up to $400 million in revolving loans, which are expected to be undrawn at the closing of the transaction.

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