Tenet Healthcare Corporation (THC, Financial) may join hands with United Surgical Partners International (USPI, Financial) at a transaction valued at $1.93 billion. This venture will undoubtedly create the largest service in the ambulatory division in the U.S. At the beginning, Tenet Healthcare will have a majority ownership of 50.1 percent. USPI, which has investors like Welsh Carson, Anderson & Stowe and others will own 49.9 percent. Around $425 million will be paid to Welsh, Carson, Anderson & Stowe and the shareholders. The period of the deal is estimated to be five years which will function through a call/put structure. After the end of the five-year period, Tenet will have the option of buying Welsh Carson’s remaining stake. J P Morgan Chase & Co (JPM, Financial) and Lazard Ltd. (LAZ, Financial) are the advisors for Tenet while Barclays PLC (BCS, Financial) and Goldman Sachs Group, Inc. (GS, Financial) served as financial advisors for United Surgical Partners.
Deal postmortem
The joint venture will be carried out on the terms that Tenet will refinance USPI's debt amount of $1.5 billion. This amount will be obtained from the $2.2 billion that Tenet expects to raise from the deal. The total value of the joint firm will be $2.6 billion. Around 245 new outpatient surgery centers will be set up, along with sixteen short-stay hospitals. Around 4,000 physicians will be operating at the facility level. These centers will be spread evenly throughout twenty-nine states in the U.S. It seems that expansion plans are on Tenet's mind. The health care company, which has its headquarters at Dallas, is also planning to purchase Aspen Healthcare at a deal valued at $215 million. The main purpose behind this purchase is to enter the UK surgery sector. Both these deals is expected to close by the third quarter this year, after which Tenet intends to update its 2015 guidance. The transaction will give Tenet an opportunity to get a larger market share due to its diversified healthcare services. This joint venture comes close on the heels after Tenet acquired Vanguard Health Systems, Inc. in 2013.
Management opinion
Once the deal is through, Kyle Burtnett will become the chief integration officer, in addition to his current role of senior VP of the outpatient division at Tenet. Bill Wilcox, Board of Directors member and CEO of USPI will continue his role as USPI's CEO. He said that Tenet has always delivered high quality care and the joint venture will boost USPI's chance to be the innovative leader in the ambulatory sector. Trevor Fetter, Tenet's existing CEO and president, said that this venture will ensure success to both the said parties, in term of financial and strategic benefits. Consumers will benefit as low-cost services will be provided with a better convenient setting. He also elaborated the benefits that shareholders will receive. He said that EPS will be neutral in 2015 and the EPS will increase by gradual addition in 2016.
Investor take
After the news was made public, Tenet stock saw an increase of 4.78% to $52 on Monday during premarket trading. Last Friday, the stock fell 1.49%. The overall 12-month increase for Tenet was 23.46%. According to Tenet's estimation of financial profits after the joint venture, 17% of EBITDA and 6 percent of revenue will be earned from ambulatory care alone. Now that Fetter has promised to create a forum of growth, shareholders of both the companies can expect an increase in their stock value. After all, the two companies will have a better footprint in the ambulatory service sector. It will be more popular among masses. It's a win-win for both the companies, patients and shareholders as well.
