US hospital chain Community Health to buy Health Management Associates for $3.9 bn

US hospital chain Community Health Systems Inc today said it would acquire smaller rival Health Management Associates Inc for $3.9 billion.

The move comes a month after Tenet Healthcare Corp, the third-largest US hospital chain agreed to buy Vanguard Health Systems Inc for $1.73 billion.

Community Health Systems, the Tennessee-based Fortune 500 company, will pay $13.78 per share in cash and stock, which is 7.6 per cent below yesterday's closing price, and a contingent value right that may add as much as $1-a-share based on the outcome of certain legal issues.

Post closing, shareholders of Florida-based Health Management will own a 16-per cent stake in the new company.

The transaction is expected to close by the end of the first quarter of 2014, subject to approval by a 70 per cent vote of Health Management's stockholders and receipt of regulatory approvals.

Health Management owns and manages hospitals and ambulatory surgery centres in small cities and selected larger urban markets. It currently operates 71 hospitals in 15 states with approximately 11,000 beds.

Community Health Systems is one of the largest publicly-traded hospital companies in the US and a leading operator of general acute care hospitals in non-urban and mid-size markets throughout the country.

It currently operates 135 hospitals in 29 states with approximately 20,000 licensed beds.

''This compelling transaction provides a strategic opportunity to form a larger company with a diverse portfolio of hospitals that is well positioned to realize the benefits of health care reform and to address the changing dynamics of our industry,'' said Wayne Smith, chairman, president and CEO of Community Health Systems.

''Our agreement with CHS provides substantial value to our shareholders. The cash and stock consideration represents an 8.3x multiple of trailing cash flow, which is higher than the multiple paid in the most recent industry transaction, and a significant premium to what we believe would be the unaffected trading price of our shares,'' said, William Schoen, chairman of Health Management.