by Tony Chen

The $5.1B (+$1.7B debt) acquisition of Triad by Community Health Systems (CHS) was approved yesterday by Triad stockholders. This is an interesting acquisition for a number of reasons:

- This creates the largest public hospital company in the U.S. The combined company will operate 130 hospitals (for now).

- This CHS offer trumps the previous offer of $4.7B by a group of investors to take Triad private. CHS saw a lot of value in Triad even though there is some overlap in the hospitals that they serve.

- For Community Health Systems, this is a blatant departure from their strategy to focus on (read: dominate) rural areas. I've heard that in some markets, they will buy two hospitals in a particular market, eventually consolidate services, and close one of the hospitals. In their corporate fact sheet (PDF), they say their strategy is to purchase 3-4 hospitals/year (and that 400 hospitals fit their profile for purchase). With this acquisition, they're content in being a player in both rural and mid-sized markets.

- Yesterday was the last day for Triad to tell the investor group if they had found a better deal. CCMP Capital Advisors LLC and Goldman Sachs Capital Partners were just hours away to closing the deal, and then BAM! the deal is gone. CHS took their bride from the altar. Don't feel too bad for CCMP & Goldman, though, they still receive a "break-up fee" to the tune of $40MM. Not bad for some due diligence and legal work. (isn't it ironic? Incidentally, CHS CEO noted that year-one cost savings of the merger would be $40-50MM.)

- This has got to be the first time I've ever seen a hospital stock go up 80% over 5 months.

- Will the FTC approve this? Will CHS be required to divest in some areas for this deal to be approved?

- Triad CEO may be looking for a job. Maybe Tenet is looking for him?.

- All these buyouts in healthcare! HCA went private, don't forget USPI did too, and now Triad+CHS are hitched. What's left? According to one hospital analyst, LifePoint is attractive, HMA's got a poison pill, UHS stock is controlled by UHS mgmt, and Tenet's got too much debt.

- Up until this past year, CHS was consistently the darling hospital stock among a lot of ugly ducklings and their management viewed as the most disciplined. 2006 was the first year that they didn't grow EBITDA in their company's history. Makes you wonder, huh?

- All this buying makes us ordinary hospital folk wonder - lots of smart people are spending lots of money to get into the business of what we do. And they do so because they think they can do it better. What value do they see? What strategies are they employing that we haven't thought up yet?