Marketplace Report: Frist's Links to HCA Deal
NOAH ADAMS, host:
And back now with DAY TO DAY. I'm Noah Adams. The country's largest hospital chain is changing hands. An investor group will buy Hospital Corporation of America, HCA, in a deal worth $33 billion. That would make it the largest leveraged buyout in history. MARKETPLACE's Janet Babin is with us. Tell us about this deal.
JANET BABIN reporting:
Well Noah, HCA has been around for a while in one form or another since the 1960s. This is the company founded by Senate Majority Leader Bill Frist's family.
It's based in Nashville, Tennessee. It operates 176 hospitals and 92 surgery centers in 21 states in the U.S. and in England and in Switzerland. And lately the company's been struggling. It's been hurt by unpaid medical bills, and that could be due to the 46 million people in the U.S. who don't have health insurance.
So HCA reported second-quarter profits had dropped about 27 percent. This buyout group includes Bain Capital, Merrill Lynch, and the Frist family. And under this proposed deal, the shareholders would receive $51.00 per share and that's about six and a half percent higher than HCA's closing price on Friday.
ADAMS: So $33 billion, the investors think they can make some money here, but what does it say for the future of patient service?
BABIN: Well it's true that, you know, here you've got this sophisticated private equity group thinking that it can make more of a profit on health care, even though health care services are usually metered out by insurance companies and government agencies.
Matt Swartz is an attorney with Pillsbury Winthrop Shaw Pittman. I spoke to him about this. He's orchestrated a lot of medical device deals, and Swartz says, you know, many people might think that HCA will probably now provide a lower standard of care as a private firm, but he doesn't think that's the case.
Mr. MATT SWARTZ (Attorney, Pillsbury Winthrop Shaw Pittman): I don't think it necessarily compels the conclusion that healthcare services to consumers will go down. I think investors are interested in making sure that patients continue to get the kind of service that will cause them to return, spend more money, recommend healthcare providers to their friends that will grow the business.
BABIN: And that being said, private equity firms, though, when they take over the businesses they do like to make a profit. So we'll likely see this group of investors go for aggressive growth at HCA.
ADAMS: It would be the largest leveraged buyout in history, and this year's seen a lot of these billion-and-billion-and-billion-dollar deals. What's fueling all this activity?
BABIN: Well you know, you and I usually don't think of it as a problem to have too much money. But for a private equity firm it gets to be just that. You've got to make efficient use of investor money that you've got, and firms lately have had a lot of it and that's meaning bigger deals.
Now analysts say all the capital that's lying around is due to a number of things, including lower interest rates, aggressive lenders, and investors moving from equities that aren't doing so well into these better-performing buyout funds.
And coming up later today on MARKETPLACE, we're looking at an innovative company that's trying to hook a big one, financially, by testing mercury levels in fish.
ADAMS: Thank you Janet. Janet Babin of Public Radio's daily business program MARKETPLACE. It's produced by American Public Media.
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