HCA Exec: Buyout Was Best

NASHVILLE, Tenn. (AP) – The top executive at HCA Inc. told health care officials on Wednesday the company got the best value for shareholders when it went private last fall in a $21.3 billion leveraged buyout.

CEO Jack Bovender defended the deal criticized by blocks of shareholders who sued the company shortly after its board had approved being purchased by HCA management and a consortium of private investment funds, including Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity.

“This has been a wonderful transaction for us,” Bovender said at a meeting of the Nashville Health Care Council, an association of health care industry officials in the city where HCA is based. “We maximized shareholder value … in a market where we were suffering a significant pounding by the Street.”

As part of the deal, which was announced by HCA last July and finalized in November, shareholders received $51 for each share of common stock, 18 percent above the stock's closing price before the agreement was made public. The deal also involved $16 billion in new debt and the assumption of $11.7 billion in existing debt.

Before the buyout could be finalized, it had to receive both regulatory and shareholder approval.

At least six shareholder groups sued to stop the buyout. They claimed the company's board of directors failed in their duty to shareholders and were not paying them enough under the transaction.

The lawsuit was settled shortly before the buyout was approved by shareholders in November.

As part of the settlement, Hercules Holding II, LLC, the entity formed by a private equity group in connection with the deal, agreed to limit the amount of fees it could receive under the merger agreement — potentially saving shareholders money on the transaction. HCA denied all the allegations brought by the shareholders.

Bovender said Wednesday that Merrill Lynch representatives met with HCA management in April 2006 and discussed the possibility of a leveraged buyout. Near the end of that month, private investment groups involved in the deal came to Nashville to meet with HCA to discuss whether the buyout was feasible.

About a week or so later, the groups said they thought they could make the deal happen, and Bovender said the company's board was then brought into the process.

The nation's biggest for-profit hospital chain, HCA operates 173 hospitals and 109 outpatient centers in the U.S., Britain and Switzerland.

Bovender said initially he thought HCA was too large a company to be bought out. At the time the deal was finalized in November, it was the largest leveraged buyout, excluding debt, since the $25.1 billion leveraged buyout of RJR Nabisco Inc. in 1988.

But Bovender said HCA began to consider the idea of a buyout as it struggled with sliding earnings, slow growth and escalating expenses for the uninsured.

Going private has meant the company has been able to take a long-term view in its attempt to decrease the number of uninsured patients and increase the company's growth, Bovender said.

“Overall, I think it went as well as it could,” he said. “This was not the purchase of a broken company. This was not a turnaround situation.”

In May, HCA reported that earnings fell 54 percent in the first quarter because of higher interest expenses related to the $21.3 billion buyout. HCA said it earned $180 million in the January-March period versus a profit of $379 million a year ago. Its revenue rose 4.1 percent to $6.7 billion from $6.4 billion a year ago.

Thomas Frist Jr., the brother of former Senate Majority Leader Bill Frist, a Tennessee Republican, co-founded the hospital chain in 1968 with his physician-father.