The deal that wasn't: Buyout of HCA fizzles at late stage

Sen. Frist's family said to be part of consortium on what might have been largest private equity deal ever

Email | Print By E. Thomas Wood

The Wall Street Journal reports this morning (subscription required) that an audacious attempt at a private equity buyout of Nashville-based HCA Inc. has foundered after reaching an advanced stage of negotiations.

The consortium of suitors is said to have included PE giants Bain Capital, Kohlberg Kravis Roberts, and Merrill Lynch Private Equity, along with members of Senate Majority Leader Bill Frist's family.

A special board committee at the hospital conglomerate convened to negotiate with the prospective buyers. But the Journal says the two sides could not come together on a price, with the group's offer more than 10 percent under what the company was willing to take. The report does not give the size of the offer, but it notes that HCA's market capitalization is $17.6 billion.

Ironically, it was HCA's recent history of come-hither enticements to public shareholders that had much to do with scuttling the private buyout. Twice since 2003, the company has taken on large amounts of debt in order to conduct share buybacks, rather to the chagrin of fixed-income trading markets and credit rating agencies.

A leveraged buyout would have involved the issuance of a large amount of new debt, but given the company's current debt load, the numbers just would not work.

But for that issue, the stars might have aligned to bring about a whopper of a deal, possibly on a scale to rival the $25 billion LBO of RJR Nabisco in 1989. Hospital companies have taken a beating on the public equity markets for some time now -- one of the factors that induced HCA co-founder Tommy Frist to take the company private in 1989. (It went public again in 1992.)

And the amount of money chasing buyout deals is at an all-time high. According to London-based research firm Private Equity Intelligence Ltd., private equity fundraising as a whole for 2006 is likely to exceed $300 billion. The firm says 74 funds that do buyouts raised a total of $84 billion in the first half of 2006.

Shares of HCA opened strongly, rising more than 3 percent on heavy volume to $44.51 before falling back. As of 9:36, the stock is trading at $43.97, up 1.57 percent.