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HCA shareholders approve $21 billion buyout

HCA Inc. shareholders on Thursday overwhelmingly approved a $21.3 billion leveraged buyout — the second largest ever in the U.S. — to take the nation’s No. 1 for-profit hospital chain private.
/ Source: The Associated Press

HCA Inc. shareholders on Thursday overwhelmingly approved a $21.3 billion leveraged buyout — the second largest ever in the U.S. — to take the nation’s No. 1 for-profit hospital chain private.

Company officials announced in a meeting at its Nashville headquarters that 283.2 million shares, or 72.9 percent, were voted for the deal while 32 million, or 8.2 percent, were opposed. There are about 388 million shares outstanding, but only 82 percent of them were present for the vote, HCA officials said.

HCA needed approval from a majority of shareholders to seal the deal, which it expects to complete by the end of the year.

HCA Chairman and CEO Jack Bovender told The Associated Press that he felt vindicated by Thursday’s vote following lawsuits filed by shareholders who claimed they were not getting paid enough under the buyout deal.

“Obviously an overwhelming majority of the shareholders felt it was a fair price,” he said. A shareholder suit that challenged the buyout was settled earlier this month.

The deal calls for stockholders to receive $51 cash for each share of common stock, 18 percent above the stock’s closing price before the agreement was made public.

Shares of HCA rose 13 cents to $50.94 in trading on the New York Stock Exchange.

The deal also involves $16 billion in new debt to be borrowed for the buyout and the assumption of $11.7 billion in existing debt.

The company announced in July that its board approved the offer by current HCA management and Hercules Holding II LLC, a consortium of private investment funds including Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity.

The leveraged buyout is the largest, excluding debt, since the $25.1 billion offer for RJR Nabisco Inc. in 1988, according to Thomson Financial.

Nashville residents John and Jane Smith, who have owned HCA stock for about 18 years and now hold about a hundred shares, said they voted in favor of the merger by proxy and turned out for the shareholder meeting to see history being made.

“We thought it would be fun to come out and watch,” John Smith, 80, said after the meeting.

Smith said he thought the price was fair considering the current share price.

HCA operates 172 hospitals and 95 freestanding surgery centers and other facilities that provide outpatient services in 21 states, Britain and Switzerland.

The buyout comes as HCA struggles with sliding earnings, slow growth and escalating expenses for the uninsured.

Bovender said going private means the company will now be able to take a long-term view in its attempt to decrease the number of uninsured patients and increase the company’s growth.

“You have to work on strategies to minimize the impact (of uninsured patients),” he said. “But you still have to realize it’s your responsiblitity to take care of these people.”

By eliminating the constant scrutiny from Wall Street, HCA will be more likely to focus on cash flow rather than earnings, said Jon Lehman, associate dean for health care at Vanderbilt Owen Graduate School of Management.

“They now have to worry about paying back the debt,” he said.

The company has already sold almost $5.7 billion of debt to finance the buyout. Analysts say a good indicator of the company’s health, if it goes private again, will be how the bonds trade on the market.

A management-led buyout 17 years ago took HCA private for three years. At the time, HCA was cutting costs and worried about a hostile takeover.

John Ransom, an analyst with Raymond James & Associates, says it’s also very likely HCA could try to go public again in the next five to seven years.

“The buyout investors have to realize their investment at some point,” Ransom said. “With a company like HCA, you either would have to take it public or sell it to another buyer.”

Thomas Frist Jr., who co-founded the hospital chain in 1968 with his physician-father, will leave almost 16 million shares of HCA stock worth $816 million in the company, boosting his ownership stake to about 15 percent from the current 4 percent.

At least six members of HCA’s senior management have agreed to invest a total of at least $46.5 million in cash or roll over a portion of their stock options into the deal.

Frist is the brother of outgoing Senate Majority Leader Bill Frist, a Tennessee Republican who is under federal investigation for selling HCA shares last year at about the same time that insiders were selling and the stock hit a 52-week high.

Frist, who is considering a 2008 presidential bid, has said he didn’t know in advance the hospital chain planned to go private, and that he would not benefit from the deal because he owns no HCA stock. He denies wrongdoing and says he got rid of the stock to avoid any appearance of a conflict of interest as he eyes a presidential run.