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New HMA board approves CHS deal

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Health Management Associates Inc. has an entirely new board of directors, but its decision is the same as the old board's — “yes” to a proposed deal with Community Health Systems Inc.

HMA, based in Florida, currently operates 71 hospitals in 15 states, including three local facilities: Carlisle Regional Medical Center, Lancaster Regional Medical Center and Heart of Lancaster Regional Medical Center. CHS, based in Tennessee, currently owns, leases or operates 135 hospitals in 29 states, including one local facility, Memorial Hospital in York.

The deal must be approved by HMA stockholders and regulators. According to HMA, the board's recommendation that stockholders vote yes was unanimous; the vote has yet to be scheduled, but both companies say they expect the transaction to close in the first quarter of 2014.

"After conducting an extensive review in conjunction with our legal and financial advisors, we are confident that this transaction provides maximum value to HMA stockholders and represents the best path forward for the Company," Steve Shulman, chairman of the HMA board, said in a news release. "In addition to having confidence in the value of the transaction, we also support the merger's strategic rationale and benefits for HMA's patients, physicians and associates across the communities we serve. HMA and Community Health Systems are stronger together. The combined entity will be better positioned to address healthcare trends and challenges. In addition, the combined organization will have a greater local and regional market depth, expanded physician relations and physician footprint, and solid clinical operations infrastructure."

"We are excited to combine these two organizations to create a hospital company with more than 200 facilities and leverage our relative strengths and combined scale to better serve our patients, physicians and communities," said Wayne T. Smith, who is chairman, president and CEO of CHS.

Under the terms of the transaction, HMA will be acquired by CHS for approximately $7.6 billion, including the assumption of outstanding indebtedness. CHS will acquire each issued and outstanding share of the common stock of HMA for $10.50 in cash, 0.06942 of a share of CHS common stock and a contingent value right, which could yield additional cash consideration of up to $1 per share.

HMA stockholders will own approximately 16 percent of the shares of the combined company following close of the transaction.

Since the current HMA board was installed on Aug. 16, it has met 11 times, conducted 16 committee meetings and engaged Alvarez and Marsal Healthcare Industry Group LLC to conduct a comprehensive review of HMA's operations, finance and compliance. A&M's analysis demonstrated, among other things, that a large initial investment would be necessary to build out HMA's information and clinical capabilities, among other things, and a successive long road to incremental value would not outweigh the benefits of accepting CHS's offer, HMA said.

The HMA board said it also engaged two companies to perform independent evaluations of the CHS deal, and both opined that the transaction would be financially fair to stockholders. The board also said it has been "overseeing the stability and performance of near-term operations, the retention of key talent in management, the preservation and strengthening of the consideration paid in the CHS proposal, the positive forward movement of HMA from a regulatory and compliance perspective, and the implementation of measures designed to increase transparency to shareholders."

HMA also released its results for the quarter ended Sept. 30 today, following a recent announcement that it is repaying about $31 million of unwarranted Medicare and Medicaid health care information technology incentive payments. Key points of the results are as follows.

• During the quarter, HMA incurred approximately $102.9 million of expenses related to change of control, severance and merger related costs. About $85 million of that was one-time expenses because the board change vested outstanding and unvested equity and performance cash awards, stock options and stock awards.

• Compared to the same period a year ago, same hospital admissions and adjusted admissions for Q3 2013 decreased by 6.8 percent and 2.9 percent, respectively.

• The uncompensated patient care percentage for the quarter was 32 percent, compared to 29 percent for the third quarter a year ago and 30.3 percent for the quarter ended June 30.

• Adjusted earnings before interest, taxes, depreciation and amortization were $135 million, compared to $234.8 million for the same quarter last year.

• The company is updating its 2013 annual guidance and, for the fiscal year ending Dec. 31, expects net revenue, before the provision for doubtful accounts, to be between $6.84 billion and $6.86 billion. That assumes continued admission softness and net revenue pressure for the balance of the year.

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