Bovender tells story of HCA buyout

Company's CEO takes Nashville Health Care Council audience through the lead-up, conception, and completion of what was the largest deal of its kind in history

Email | Print By Walker Duncan

Jack Bovender

When asked today what came as the biggest shock during the course of the HCA buyout last year, CEO Jack Bovender replied, laughing, “honestly, the fact that you could borrow $28 billion.”

The question came following his presentation to the Nashville Health Care Council in which he briefly offered an insiders perspective into the lead-up to, conception and completion of what was at the time, the largest leveraged buyout in history.

Though much of the story has already come to light, and, what’s worse, has been endlessly opined about, according to Bovender it really boiled down to an issue of valuation.

He began the talk with an overview of the decade leading up to the deal in which he outlined various strategies undertaken by the company to increase shareholder value. Those steps included dividend increases and a massive stock buyback whereby the company repurchased more than 50 percent of its outstanding shares between the beginning of 1997 and last year's transaction at a cost of roughly $12.5 billion.

The crowd chuckled lightly as Bovender then clicked over to the next slide containing scathing reviews of such efforts from well-known health care analysts such as Sheryl Skolnick and Adam Feinstein, among others.

Eventually Bovender made a call to Jim Forbes, head of the healthcare investment-banking group at Merrill Lynch, looking for a way to somehow restructure the company, to which Forbes replied, according to Bovender: “Is an LBO out of the question?”

Previously, HCA management had assumed the company was too big to have an LBO as an option. But after Forbes came back with a rough idea of how the deal could be done, the next call Bovender made was to Bass Berry & Sims’ Jim Cheek to work out when the transaction should be presented to the company’s board of directors.

The wheels really began turning on April 24, 2006 when the buyers group was assembled for the first time. It consisted of KKR, which came to the table through previous dealings with Bovender, Bain Capital, which had previous dealings with the Frist family, and Merrill Lynch.

Following the meeting, the group agreed that the deal was feasible, and agreed to put up the money. Bovender noted here that Tommy Frist, whom they had expected to provide somewhere in the neighborhood of $750 million to the transaction, wound up gathering together closer to $900 million.

This began what Bovender, later in the talk, referred to as the “231-day process” through which HCA went private. It was around this point that the deal was turned over to the independent directors.

When he reached this point in the talk Bovender turned the stage over to Jim Cheek, who stressed the importance of having a plan from the outset.

“You need to have a process that is going to be respected, relying on independent decision-making,” he told the crowd.

It was their initial attention to planning when the deal was still just an idea that, according to Cheek, helped the company guard against the litigation and regulatory review it underwent after the deal was announced in July of ’06.

Bovender then took back the stage for a few closing remarks.

In the end, the CEO said, he was proud of the $51 per share that HCA’s stockholders received. Earlier in the talk, speaking about Cheek’s handling of the deal and how it was put to the board, shopped, and eventually closed, Bovender commented: “I don’t think it could have been done better.”