Bain Capital LLC, Merrill Lynch & Co and Kohlberg, Kravis Roberts & Co (KKR) will offer to buy HCA Inc, the biggest US hospital operator, for about US$21 billion, according to people familiar with the talks.
Members of the Frist family, founders of Nashville, Tennessee-based HCA, are joining the three private equity firms in the bid, the people said. The price would be about 7 percent higher than the company's US$19.5 billion market value on July 21.
The deal, which could be announced as soon as yesterday and would include the assumption of about US$10 billion in debt, the people said. The total value would rival KKR's 1989 purchase of RJR Nabisco Inc for US$31.3 billion, the biggest buyout ever.
Rising costs of caring for patients without insurance and pressure from Congress to cut government payments have caused declines in US hospital stocks, analysts said.
"It makes sense for a company like HCA to operate in private," Sheryl Skolnick, an analyst with CRT Capital Group LLC in Stamford, Connecticut, said in a July 20 interview.
"They don't use their equity for acquisitions or compensation. They are more likely to need to shed assets," she said.
A deal would return HCA to private hands for a second time. The company, now with 273 hospitals and surgery centers, completed a US$5.1 billion leveraged buyout in 1988 and went public again in 1992.
The stock rose 8.9 percent in German trading yesterday. It closed at US$47.87 on July 21. Before a 10 percent runup on July 20, HCA shares had lost 13 percent this year, underperforming a little-changed Standard & Poor's 500 Index.
HCA's share price-to-cash flow ratio recently fell to 6.7, less than half what it was five years ago, according to Bloomberg analysis.
"It went private in the late 1980s at that multiple," Skolnick said. "That's the valuation at which Tommy Frist historically when he was running the company would look to do some sort of major transaction."
Founded by physicians Thomas Frist Sr and Thomas Frist Jr, the father and brother of US Senate Majority Leader Bill Frist, HCA first went public in 1969 with 11 hospitals. Seeking economies of scale, the company grew to 463 hospitals by 1987, then spun off some and went private.
HCA's board was scheduled to meet late on Sunday and may not vote until yesterday, the Wall Street Journal reported on Sunday night. The Frist family, with 4.4 percent, and management were involved in the talks, the Journal said.
Chief executive officer Jack Bovender Jr, 60, didn't return a message left on his home phone late on Sunday. HCA spokesman Jeff Prescott didn't return messages on his office, home and mobile phones.
A KKR spokeswoman and Merrill Lynch's spokeswoman both declined to comment. Bain managing director Steve Pagliuca didn't return a call seeking comment.
Senator Frist said in January that he sold his HCA shares last year.
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