Tomahawk, WI 8/13/2013 (Basicsmedia) –Health Management Associates Inc (NYSE:HMA) has announced that an Independent Inspector will now review as well as certify the consents that have been submitted by Glenview Capital Management. Before we start dissecting the implications of this development and delve into the depths of its repercussions let’s do a quick scan on the path that both these companies traversed before they reached this juncture.

The backdrop

Community Health agrees to buy Health Management Associates for $3.9B in cash &stock as well as a $3.7B assumption in debt. On a per share basis, this $3.9B is composed of $10.50 in cash +$3.15 in Community Health shares. The deal is slated to be sealed sometime in the early part of 2014. This is under the assumption that 70% of Health Management’s shareholders vote “for” the deal. Enter, Glenview Capital Management. This $6B employee-owned hedge fund owns a hefty 14.6% of HMA and frowns upon the deal.

What’s the big deal?

News has it that the HMA transaction is projected to be notably accretive to CYH’s earnings in the 2nd year post closure of the deal. The latter forecasted that within 2 ½ years, the symbiosis of the deal will stand in the range on $150-$180M annually. Community Health believes that on an average, Health Management’s “length-of-stay” is around 50% higher than its own. The assumption was that this can be pulled-down to a level that is more tuned to the experience that CYH harbors.

The independent Inspector

Wayne Smith, the CYH Chief Executive Officer said that they would hold a “neutral” stand in the HMA proxy fight. He also assured that they will cooperate with the in-charge entity, to close the deal. When asked if CYH will be raising its bid, he said that the price has already been agreed upon and he does not see any reason why he should respond to that question.

Now, post the proxy fight that had been initiated by Glenview, HMA has hired Morgan Stanley to scan all strategic alternatives. From 2004-2007, HMA’s stock rode in the $20-$25 range. After Glenview peeked into the frame, it started dropping to lower valuations. In the recent past, it had tumbled to the $14-$17 range. At the time of writing, HMA stock was trading at $13.16 which is a notch below the lows that it was already experiencing and is bound to raise some eyebrows.

The deliberation

The next logical question that pops into my grey cells is why exactly does Glenview want a replacement for the HMA board? It is plausible that Glenview merely thinks that it would be regrettable to sell Health Management at a low price. In Glenview’s opinion, HMA has an impressive agglomeration of hospitals.

Now that Obamacare is being brought center-stage, the healthcare industry has a luminescent future. In line with this belief, 1/3rd of the $6B fund that Glenview holds has been invested in five different hospital companies. It holds a majority stake in HMA and CYH and owns 14.6% and 9.6% of common stock respectively.

A different perspective

Flip the coin and you will see that of late the hedge fund industry has not performed at anywhere close to stellar levels and Glenview might just want to avoid being cash-strapped right now. When I scrutinize the issue with a magnifying glass, I feel that in reality, Glenview’s only objective might be to accept that very same price but at the end of the day, its desideratum is lesser cash and more stock.

A WSJ report stated that HMA was angling for an all-cash deal. This coin that I’m looking at is a three-faced one and the other option might be that Glenview plans to position itself in such a manner that it gets a sugar-coated deal. The fact of the matter is that right now, there is a great amount of fluidity in the direction that the HMA stream will meander in and only time will tell if it really wants to gush into the Glenview ocean.

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