Merger Watch: Just How Much Can Tenet Fetch? (CYH, THC)

Community Health Systems, Inc. (NYSE: CYH) was one we flagged over the weekend for “the biggest analyst calls of the week” due to its move early last week and then again in the after-hours session on Friday.  The company’s move to acquire Tenet Healthcare Corporation (NYSE: THC) is going “far from well” and the news appears to have gone from bad to worse.  And to complicate matters even more, Community Health has decided to change its buyout offer strategy for Tenet.

Tenet sued the company over fraud over Medicare abuse to prevent a hostile acquisition.  Then came news on Friday afternoon that Community Health had received a U.S. subpoena on Medicare claims.

Community Health shares were up above $40.00 just ten days ago and but shares closed at $25.89 last Monday after Tenet alleged Medicare abuse in part of its takeover defense.  Community Health shares were back up to $31.90 on Friday but the Medicare investigation news took out another 13% of its value and shares went back to about $27.50 in the after-hours session Friday afternoon.  These shares are down “only” about 7.7% around $29.50 so far on Monday.

Where the news gets weird in the “new” merger offer is that Community Health is now just offering $6.00 in cash per share rather than being a breakdown of $5.00 per share in cash and $1.00 in stock.  Tenet had rejected the $5 stock and $1 cash way back in December.  The long and short is that a hostile merger is now more hostile, yet not hostile enough per the investment community.

Tenet Healthcare Corporation (NYSE: THC) is actually trading lower by about 4% at $6.40 today.  The disappointment is not in the drop seen in Community Health shares.  What investors have expected is a significant rise in the offer for Tenet.  Shares were at $6.66 on Friday and the 52-week trading range is $3.92 to $7.70.  The big drop came last week after the news broke that Tenet was suing.

Tenet has been a dead stock for more than five years.  Things hit skid row back in about 2003 and the slide continued into the recession.  Many investors still recall when Tenet was trading at higher prices.  At the peak, this went from $30.00 to right at $50.00.  That was then, this is now…

Tenet may want more money to consider a merger.  What is realistic is anyone’s guess.  Analysts have a consensus price target of roughly $7.60 on Tenet.  Maybe that is what the Tenet board of directors wants.  Maybe it wants even more.  Merger offers cannot last forever, particularly when the target is willing to do whatever it can to avoid being acquired.

JON C. OGG