Monday, July 24, 2006

Giant Healthcare Company HCA Going Private Again

In the world of leveraged buyouts, HCA’s planned acquisition will the largest ever. The Frist family and three investment houses proposed the deal accepted by the HCA Board. For the second time in its corporate history, Tommy Frist is taking the company private.

The first time occurred in 1988 while I worked as an Assistant Administrator for an HCA managed hospital. Prior to that $5.1 billion buyout, Tommy was heard telling people at a corporate event “A smart man would buy our stock”. I missed my chance then and am no longer close enough to the company to get any timely investment advice.

Senator Bill Frist no longer owns any HCA stock so the general public should have no worries about any potential conflicts of interest. But isn’t blood thicker than water? That might explain the obvious tilt in Congress toward for-profit healthcare.

Yet, Bill Frist remains on the powerful Senate Finance Committee which determines Medicare and Medicaid reimbursement rates. The co-chairs of the Senate Finance Committee, Max Baucus and Chuck Grassley gorge on for profit health care donations at the campaign money trough. In return they use the IRS to remove that unfair competitive advantage non profit community hospitals have over their for profit brethren. Non profits are tax exempt.

I am curious about this buyout from several perspectives. With President Bush screaming about cutting Medicaid and reigning in Medicare, why do Bain Capital, KKR and Merrill Lynch Global Private Equity think this is a good deal at roughly $32 billion? What do the investors know that the general public does not? Why doesn’t the average American know President Bush wants to contract all government sponsored health care to private companies?

The buyout group is paying a premium of 18% compared to last week’s stock price. It is only a 6% premium compared to Friday’s close as the word leaked of a possible deal. That couldn’t have been Tommy telling folks “Now a smart person would be buying our stock”?

What advantages does HCA gain by not being subject to SEC regulation? What information will no longer be public? How will it impact openness and transparency in the company’s interactions with the federal government?

The news said the Board will solicit proposals for the next 50 days. Who else will marshal a bid? Will The Carlyle Group’s new health care division attempt to swallow such a huge company in its first year of major expansion? Will Welsh, Carson, Anderson, and Stowe partner with Carlyle on another deal? WCAS has a strong healthcare background owning several ex-HCA subsidiaries.

What this deal shows is there is still serious money to be made in for profit health care courtesy of Bush and company. The next 50 days will show who is serious about making that money.

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