On Monday, Tenet Healthcare Corporation (THC) publicized its financial and strategic plans comprising acquisitions, share repurchases, debt repayment and a reverse stock split. With these plans, the company is aiming at enhancing business growth and optimizing capital structure, thereby boosting shareholder value.
Per the plans, Tenet Healthcare will pursue inorganic growth by undertaking acquisitions worth $400 million in the near term. The company will pursue deals that will strengthen its main business lines – acute care hospitals, outpatient facilities, and business process services.
Toward this aim, Tenet Healthcare already has two transactions lined up. Conifer – one of Tenet Healthcare’s subsidiaries – is acquiring InforMed Health Care Solutions, which will widen its service portfolio. The company is also conducting negotiations to purchase California-based Emanuel Medical Center.
Additionally, Tenet Healthcare announced a new $500 million share repurchase authorization, which is expected to be fully utilized by the end of 2013. Of late, the company has been actively repurchasing shares from the open market to enhance shareholder value. Moreover, complete utilization of the new authorization will take the total expenditure on share repurchases to $1.2 billion in a little more than 2 years.
Tenet Healthcare is also implementing a reverse stock split on October 11, whereby one new share will be issued in place of four existing shares. This, combined with the planned repurchases, will sharply reduce the outstanding share count.
Moreover, Tenet Healthcare plans to issue new debt worth $800 million in order to capitalize on the historically low interest rates. This includes private offerings of 4.75% senior secured notes due 2020, worth $500 million and 6.75% senior unsecured notes due 2020, worth $300 million.
The proceeds from the issue will be used to reduce Tenet Healthcare’s bank overdraft, fund the planned acquisitions, and repay outstanding 7.375% debt worth $216 million, which is due in February 2013. Remaining proceeds will be used for general corporate purposes.
While the acquisitions will strengthen Tenet Healthcare’s core business, residual proceeds from the debt issue will boost financial flexibility. Meanwhile, share buyback will enhance earnings per share and boost shareholder value. Thus, overall the plan is expected to be beneficial for the company.
Tenet Healthcare, which competes with HCA Inc. (HCA) and Community Health Systems Inc. (CYH), carries a Zacks #2 Rank, which translates into a short-term Buy rating. We maintain a long-term ‘Outperform’ recommendation on the stock.
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