Tenet Purchases Vanguard in $1.7 Billion Deal

This post is cross-posted from Paul Levy’s blog ‘Not Running a Hospital.’

The big news today is that Tenet Healthcare Corporation is purchasing Vanguard Health System for $1.73 billion in cash ($21 per share), while also assuming $2.5 billion in the company’s debt.  Vanguard’s shareholders are lucky to walk away with this money.  It was just three years ago that Vanguard spent $1.5 billion to acquire Detroit Medical Center and just two years ago that the private equity firm was able to sneak by with an initial public offering at $18 per share.  Investors buying at that time will have made $3 per share, or about 17%, during a period (if I read the charts correctly) in which the New York Stock Exchange Health Care index rose about 30%.

So, let’s see.  The private equity firm that owned Vanguard did worse than expected in its IPO.  Then, notwithstanding the lower base price, the public investors have also done worse than the market as a whole.

So much for a private equity strategy that hoped to make a bundle on purchasing hospitals to show top line revenue growth.  So much for a public investment strategy that thought it could achieve higher than expected earnings once the system had to operate in a normal financial fashion.

The press release accompanying the purchase suggests that the result will be accretive to earnings in the first year and that there will be annual synergies in the range of $100 to $200 million.  We’ll see.