In the latest combination in the healthcare industry, Tenet Healthcare Corp. has agreed to acquire OrNda HealthCorp for about $1.8 billion in stock, the companies said Thursday.
Tenet, based in Santa Barbara, Calif., is the second-largest investor-owned health care company in the United States. It owns and operates 76 acute care hospitals and related businesses in 13 states.
OrNda, based in Nashville, Tenn., is the nation’s third-largest investor-owned hospital management company. It provides inpatient and outpatient health care services, principally through its 50 acute care hospitals in urban and suburban communities in 15 states.
The combined company will have annual revenues of about $8.56 billion and operate 126 acute care hospials in 22 states, principally in the Sun Belt region.
Under the agreement, OrNda shareholders will receive 1.35 Tenet shares for each share of OrNda.
Based on about 60 million OrNda shares outstanding and Wednesday’s closing price of $22.125, OrNda shareholders will receive $1.8 billion in Tenet stock, the companies said.
Jeffrey Barbakow, 52, Tenet chairman and chief executive officer, will retain those posts in the new company. Charles Martin Jr., 53, OrNda’s chairman, will become Tenet’s vice chairman.
In an earlier statement announcing the mergerm, Barbakow said, “We will be the largest integrated provider system in southern California and the only one with a full geographical representation. This will allow us to work with payors of all types — both private and governmental — across all of southern California for the delivery of efficient health-care services.”
In south Florida, the transaction further enhances Tenet’s strong integrated delivery system by increasing its acute care hospitals from seven to 11 and expanding the network’s geographic reach south to Miami and into Coral Gables.
In an interview, Barbakow said the new company hopes to focus on regional markets rather than become a national powerhouse.
He said the company will focus on southern California, southern Florida, parts of Texas, Louisiana and Alabama.
“Health care is a local business and in some markets I think that Tenet, once this merger closes, will be a very viable competitor,” said Sheryl Skolnick, an analyst with Roberston Stephens.
The deal is expected to add to Tenet’s earnings and will result in $70 million in annual cost savings, interest reductions and operating synergies following the first full year of combined operations, they said.
The companies hope to close the deal in early March 1997. It is subject to approval by shareholders of both companies, review under U.S. antitrust law, and other regulatory approvals.
OrNda’s stock closed at $27.50 a share, up 25 cents, and Tenet closed at $21.25, down 87.5 cents, both on the New York Stock Exchange.