Community Health to Sell Two Hospitals - Analyst Blog

The second largest for-profit U.S. hospital operator, Community Health Systems, Inc. (CYH) has won approval to acquire Health Management Associates Inc. (HMA) given the condition set by the U.S. Federal Trade Commission to sell two hospitals. Following the announcement, shares of both CYH and HMA rose 2.7% and 0.5%, respectively.

The Federal Trade Commission evaluates proposed mergers for compliance with antitrust law. Under its deal with Community Health Systems, the latter will sell the Riverview Regional Medical Center near Gadsden, Ala. and the Carolina Pines Regional Medical Center near Hartsville, S. C. Details of the buyers of these hospitals were not disclosed.

At the beginning of this month, shareholders of HMA have voted in favor of its merger with CYH. Franklin, Tenn.-based Community Health Systems offered to acquire Naples, Fla.-based Health Management Associates in June last year.

Community Health Systems will take over Health Management Associates for $13.78 per share. The deal is valued at roughly $7.6 billion (including the latter's debt of $3.7 billion) in cash and stock.

HMA stockholders will own about 16% of the shares of the combined entity following the completion of the transaction. The acquisition is expected to complete by the end of the month.

Both Community Health Systems and Health Management Associates operate in smaller cities and rural areas in the U.S. Following the merger, CYH will gain access to HMA's highly focused southeast U.S. market, including Florida.

However, Community Health Systems will remain the second largest hospital network trailing HCA Holdings Inc. (HCA), which focuses on larger markets. The combined entity of CYH and HMA will operate 206 hospitals across 29 states in the U.S.

The U.S. hospital care industry is undergoing a consolidation trend in order to adapt to changes brought by President Barack Obama's Affordable Care Act. In October last year, the third largest hospital network in the country, Tenet Healthcare Corp. (THC) acquired Nashville, Tenn.-based Vanguard Health Systems for $1.7 billion.

Currently, Community Health Systems carries a Zacks Rank #3 (Hold).