Talk of Takeover Grows at Health Management Hospital Group

Ever since the chief executive of Health Management Associates, the for-profit hospital system, abruptly announced nearly three weeks two weeks ago that he would be leaving to lead a religious mission in South America two weeks ago, speculation has mounted about whether the for-profit hospital systemcompany could be headed for a takeover.

The company’sIts stock has soared 36TK percent to a six-year high. Its largest shareholder appears eager to play a bigger role in determining the company’s next steps, even if that means taking on the board. And executives from the most -likely potential buyer have -â€" without actually naming names â€"- indicated they could be in the market..

TOn WednesdayThis , This week, the Naples, Fla.-based companyH.M.A., which is based in Naples, Fla., said its board of directors has had hired financial advisoers to help it consider strategic alternatives but also made clear it would n’ot be discussing its plans in any detail.

Pressure is intensifying on HMAthe company and its board, particularly its chairman, William J. Schoen, who is viewed by some analysts as less -than -enthusiastic about selling the company.

A former chief executive who has shaped and reshaped HMAthe company several times over the decades, Mr. Schoen, 77, has been the company’s chairman for 27 years.

“He’s certainly someone who’s played a very strong role in forming the company’s strategy,” said Darren Lehrich, an analyst at Deutsche Bank. “There could be some protecting-the-legacy issues there.”

H.M.A. is the The nation’s third-largestCK public for-profit hospital chain, by number of beds, with 71 locationsfacilities located in some rural areas of the country., HMA It has struggled in recent months with falling inpatient admissions into its hospitals.

While other hospitals also reported weaker financials in the first few months of this year, HMAthe company’s revenues may have also been impactedhurt by an investigation by CBS’s “60 Minutes” that ran late last year, highlighting concern over whether patients were being unnecessarily admitted. In the report, several former employees said HMAthe company coerced doctors to admit patients to its hospitals, regardless of medical need, in order to boostincrease company profits.

H.M.A. has denied the allegationsaccusations, saying admissions are “based solely on what is best for patient care.” CK.

Among the myriad of government investigations and civil lawsuits that the company discloses in its regulatory filings, H.M.A. has also indicated that United States attorney’s’ offices in seven states awere investigating its physician referrals, including financial arrangements and the “medical necessity of emergency room tests and patient admissions.”

The inquiry appears to be part of a broader look by federal regulators into whether some of the nation’s hospitals are pressuring emergency physicians and others to admit patients who could be treated without having to stay overnight in the hospital.

H.M.A. says it is said it was cooperating with regulators. RESPONSESo

Some Wall Street analysts say those various investigations and lawsuits could turn off potential buyers.

“Buying H.M.A. means dealing with its troubled operations plus escalating risks from burgeoning legal issues that could prove prohibitively expensive,” wrote Vicki Bryan, an analyst at the bond research firm Gimme Credit, wrote in a note to clients earlier this month.

Others note that since a wave of acquisitions several years ago by private- equity buyers, most of the deal activity among public hospital systems has been for single -hospitals or smaller deals.

“There are a lot of smaller, not-for-profit hospitals that are looking for financial partners,” said Dean Diaz, a senior credit officer at the Moody’s Corporation. “There are a lot of potential targets out there that can be done without necessarily looking for a big transformational deal.”

It was aA series of curious moves that kindledspawned the recent speculation around the company.

In early May, Glenview Capital Management, the hedge fund founded by Lawrence arry M. Robbins, signaled in a regulatory filing that it had increased its stake and now held more than 37 million shares, or 14.6% percentofpercent of H.M.A.’s outstanding , shares.

The company’s stock hardly budged rose slightly on the news. But the filing drew a much sharper, defensive response from the board of directors.

About three More than two weeks later, at a board of directors meeting, the company adopted a so-called “poison pill” that, essentially, prevents to thwart theany hostile takeover by a large investor. The pill goes into effect if any investor tries to buy 15 percent or more of the company.

The company’s stock began climbing, and within a few days, Glenview issued a “clarification” that said it had no interest in acquiring the company.

Investors were further stunnedthen surprised in late May when the company announced that its chief executive, Gary D. Newsome, 55, would retire from the company at the end of July to take over as Ppresident of the Uruguay-Montevideo Mission in South America.

Mr. Newsome, who became chief executive of the company in 2008, earned nearly $22 million in total compensation inover the last three years, according to regulatory filings. Mr. Newsome had been a senior excutiveexecutive at Community Health Systems, another for-profit hospital system..

This week, Glenview raised the stakes when it asked that the board to remove or change the “poison pill” in a way that would allow investors to acquire a bigger stake without triggeractivating it, according to the regulatory filing.

The letter added that Glenview iswas evaluating whether to formulate a proposal to make changes “to all or a portion” of the company’s board of directors.

That’s an unusually aggressive and public stance for Mr. Robbins, who observers say prefers to exert his influence on companies in a more friendly, behind-the-scenes kind of way.

Mr. Robbins has been hot oneager for hospital stocks for many months more than a year, talking them up at a New York investor conference a year ago. Glenview owns stakes in several publicly traded for-profit hospital systems.

The list of potential buyers for H.M.A. isn’t long, with many pointing to the most likely candidate as Community Health Systems as the most likely candidate.

Pointing toCiting the company’s success in its $6.8 billion takeover of Triad Hospitals in 2007, an executive for Community Health told investors at a conference in late May that it was “open to doing that again.”

But the executive emphasized that any potential deal would have to be done on friendly terms. Community Health learned that lesson the hard way in after 2010 when its unsuccessful unsolicited, or hostile, bid for Tenet Healthcare in 2010 blew wound up in an ugly mix of lawsuits and allegationsaccusations of fraud and wrongdoing between the two hospital systems.

Community Health has disclosed it is also under investigation by the Department of Justice Department, which is seeking information “about our relationships with emergency department physicians, including financial arrangements.” Community said it iswas cooperating with government officials. The company declined to comment further on the investigation and its potential interest in H.M.A. Community TK

The question many are asking is whether H.M.A.’s boarddirectors, particularly Mr. Schoen, would welcome even a friendly bid?.

In its statement on Wednesday, the board said it had engaged Morgan Stanley and Weil, Gotshal & Manges to consider “strategic alternatives and opportunities available to H.M.A.”

While Mr. Schoen has spurned attempefforts by others to acquire H.M.A. in recent years, he is certainly no stranger to deal -making. The chairman of a small bank in Naples that he had started, Mr. Schoen joined H.M.A.’s board in 1983. Less than two years later, after setting the company own its course of acquiring rural hospitals, he was named co-chief executive.

Later, in 1988, Mr. Schoen took H.M.A. private and then public again in 1991.

But a few years ago, in 2007, when H.M.A. gotengaged into serious discussions about a potential buyout with a group of private -equity firms, Mr. Schoen thwarted their efforts. He engineered a deal in which HMAthe company borrowed $3.25 billion, loading the company up with debt, in order to pay shareholders a $2.4 billion in dividends.