HCA Agrees to $21.3B Leveraged Buyout

By Daniela Deane
Washington Post Staff Writer
Monday, July 24, 2006; 10:55 AM

HCA Inc., the country's largest for-profit hospital operator group founded by the family of Senate Majority Leader Bill Frist (R-Tenn.), agreed to be bought by a private investor group for about $21 billion, one of the biggest buyouts in U.S. corporate history, the company announced Monday.

The investors group includes three private equity firms -- Bain Capital; Kohlberg, Kravis Roberts & Co. (KKR); and Merrill Lynch & Co. It also includes Dr. Thomas F. Frist Jr., brother of the senator and one of the founders of the Nashville, Tenn.-based hospital company, and members of HCA's management, HCA announced in a news release.

Including the assumption of $11.7 billion in debt, the total transaction is valued at approximately $33 billion. KKR's 1989 purchase of RJR Nabisco Inc. for $31.3 billion was the biggest buy-out ever.

Under the terms of the deal, HCA shareholders will receive $51 per share, representing a premium of about 18 percent to the company's closing share price last Tuesday, the last major trading day before news of the impending deal began trickling out. Shares of HCA rose to $49.95 in early trading today on the New York Stock Exchange.

"After careful analysis, the special committee and the board have endorsed this transaction as being in the best interests of our shareholders," HCA Chairman and Chief Executive Jack O. Bovender was quoted as saying in the release.

"This transaction will position the company to continue its tradition of high-quality service provided with genuine caring," Thomas Frist said in the release. "In addition, the transition will position the company and its employees for sustained future success."

HCA said it will seek better proposals during the next 50 days. Barring any better offers, the company expects the deal to be completed in the fourth quarter of this year.

The deal comes at a difficult time for U.S. hospital operators, struggling under various pressures, including a growing number of uninsured patients, higher expenses due largely to debt payments, and tighter restrictions by private health insurers and Medicare.

But it shows the increasing power of private equity firms, which have been on the look-out for bigger and bigger acquisition targets.

HCA owns several facilities in the Washington area, including Dominion Hospital in Falls Church, the Fairfax Surgical Center in Fairfax and the Reston Hospital Center in Reston.

The Securities and Exchange Commission last October opened an investigation into Sen. Frist's sale of HCA stock.

Frist, a transplant surgeon-turned-politician, was asked to turn over personal records and documents connected to his sale of company stock in June 2005, which took place near a 52-week high for the stock. Within days of the sale, HCA warned investors about weaker-than-expected financial performance, which sent the stock price spiraling downward by 9 percent in one day.

During his decade in the Senate, Frist has been active in shaping health care policy, including creation of a Medicare prescription drug benefit, and the probe has raised questions about whether Frist's Senate role ever benefited his family's business.

Spokesmen for Frist have said the senator no longer owns any HCA stock. As of April, his brother owned 16.9 million shares, a 4.4 percent stake valued at about $809 million, news reports said.

HCA, a leading provider of health care services composed mainly of locally managed facilities, includes approximately 182 hospitals and 94 outpatient surgery centers in 22 states, England and Switzerland employing some 190,000 people.

Although the company's outlook is unclear, it also comes at a time when the nation's population is rapidly aging, with the prospect of ever more money being spent on health care services.

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