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September 22, 2023

CHS signals all-clear on takeover threat

CHS signals all-clear on takeover threat

Dave Barkholz | Modern Healthcare

Community Health Systems CEO Wayne Smith said Thursday that the hospital company intends to let lapse a poison pill defense against a potential hostile takeover as it pursues a turnaround that includes hospital and asset divestitures.

Speaking on the sidelines of the year’s first luncheon program of the Nashville Health Care Council, Smith said the shareholder rights plan—as he preferred to call it—will expire as planned on April 1.

Smith declined to say whether he believed the prospect of a takeover attempt had ended. But he noted that Chinese billionaire Tianquio Chen, who bought 15.5 million shares of CHS last year to become its largest shareholder, has stated his desire to remain a passive, rather than activist, investor.

“Mr. Chen has said all along that they are very passive. They’re great investors, and we like them a lot,” Smith said.

CHS, the nation’s second-largest investor-owned hospital company, put in place a poison pill in October at the height of Chen’s share-buying activity. Smith said at the time that it was being implemented to give CHS an opportunity to sort out its business restructuring without the distraction of external investors possibly making a hostile play for the company.

There were rumors that a buyer might step forward to negotiate a sale with CHS of the entire company. Those rumors, which circulated around private equity group Apollo Global Management possibly being a buyer, have quieted. Smith declined to comment whether a single buyer could still be sought for all of CHS.

A poison pill makes it more expensive for unwanted investors to buy a company by going directly to shareholders and around management.

In the case of CHS, it would go into effect if any shareholder attempts to acquire more than 15% of the company’s shares.

If triggered, common shares would be replaced by certificates that would entitle shareholders to purchase fractions of participating preferred stock for $50 per share with the same economic and voting terms of a common share.

If it takes effect, common shares that now cost slightly more than $6 per share on the open market would cost a takeover buyer nearly eight times as much to purchase.

Smith said the turnaround of CHS is going according to plan. The company is selling hospitals, its home health business and other assets to reduce a $15 billion mound of debt.

The company is getting good interest for the noncore hospitals it is selling, especially from regional not-for-profit health systems that want to make CHS hospitals a part of their care networks and referral patterns.

Of eight hospital divestitures announced last year all had not-for-profit buyers. CHS also is negotiating deals to sell nine more hospitals.

Among the buyers so far are MultiCare Health System, a five-hospital system in Tacoma, Wash., that has agreed to pay $425 million to buy CHS’ two hospitals in Spokane, Wash. That deal is expected to close in the first half of this year.

Smith was the emcee of the health council’s annual Wall Street program, at which analysts weigh in on trends in the industry.

The panelists were Paula Torch, senior research analyst at Avondale Partners; Whit Mayo, managing director at Robert W. Baird; A.J. Rice, managing director at UBS; and Chris Rigg, Deutsche Bank’s senior managed care and healthcare facilities analyst.

Rigg told a sold-out audience of 660 people that the Republican plan to replace the Affordable Care Act was likely to rely on the infrastructure laid down by the Medicaid expansion in 22 states to continue access for the 20 million newly insured under Obamacare.

Rigg said half the people covered on ACA exchanges would be eligible for Medicaid if states extended coverage to those earning 200% of the federal poverty level.

Rice said he’s convinced that repeal will be phased in over at least two years to give consumers, insurers and providers time to adjust to the changes.

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