Done deal: HCA agrees to $33 billion buyout

Largest private equity deal ever takes nation's largest hospital company private for the second time

Email | Print By E. Thomas Wood

HCA Inc. this morning announced that it has come to terms with a consortium of private equity firms, as well as its own co-founder Tommy Frist and family, on the largest leveraged buyout in history.

Private equity funds Bain Capital, Kohlberg Kravis Roberts and Merrill Lynch Global Private Equity, together with the Frists, will buy HCA in a deal valued at some $33 billion, including the assumption or repayment of $11.7 billion of the company's large debt burden.

The total deal value exceeds that of KKR's buyout of RJR Nabisco in 1989, a transaction that not only financial professionals, but also many observers of American society, viewed as an iconic moment symbolizing much of what the late 1980s were all about. That deal's $31 billion pricetag included $6 billion in RJR debt.

Last week, media reports said the parties had broken off negotiations on a similar deal, unable to come close to each other's price expectations. But the logic of this buyout at this time was apparently inexorable. The buyers are betting that HCA is worth more than the investing public would give it credit for, in a prolonged downdraft for hospital company stocks. And they can do the deal because of the unprecedented flow of money into private equity buyout funds in recent months.

HCA and Dr. Frist personally know the landscape of leveraged buyouts well. RJR Nabisco was hardly an aberration in its 1989 LBO, as HCA went private the same year. A group led by Frist put up about $5 billion to take the company private, spinning out its psychiatric hospitals, management company and international division to help cover the cost.

One Nashville businessperson remembers encountering Frist at a social function soon after that buyout went through. The HCA co-founder rolled his eyes as he spoke of what a relief it was to be rid of the scrutiny of stock analysts and the rigors of compliance with market regulations that applied to public companies (and apply ever moreso today).

In 1992, however, in need of investment capital at a level only the public markets could provide, Frist took the company public once more.

The $51 per share that HCA shareholders are to receive represents a 6.5 percent premium on Friday's close and an 18 percent premium over the share price earlier in the week, before rumors of a deal drove the stock higher.

Bank of America, Citigroup Global Markets, JPMorgan, and Merrill Lynch Capital Corp. have committed debt financing to back the transaction, but its closing is not subject to any financing conditions.

Among those locally putting in long hours on the transaction have been attorneys from Bass Berry & Sims, which represents HCA. The special committee of HCA's board, which has been considering the deal at arm's length from Frist and other insiders, went out of town to find representation, retaining Shearman & Sterling of New York.

Knowing that going-private transactions almost inevitably attract shareholder litigation -- as was the case when Nashville's iPayment and Thomas Nelson Inc. each went private earlier this year -- the company has negotiated a deal that lets it date around a bit before marriage, seeking any alternative deal that might be better for shareholders.

"Under the merger agreement, HCA may solicit superior proposals from third parties during the next 50 days," this morning's company announcement explains. "The board of directors of HCA, through its special committee and with the assistance of its independent advisors, intends to actively solicit superior proposals during this period."