The board of directors of Community Health Systems has adopted a “poison pill” defense to make it harder for shareholders to accumulate a controlling interest in the company while it pursues a sale to a private equity company or other suitors.
The so-called Short-Term Stockholder Protection Rights Agreementby the company.
Though the agreement takes pains to say the agreement is not aimed at any specific individual or company, Chinese billionaire Tianqiao Chen bought nearly 1 million more shares of CHS in the last week of September, raising his stake in the troubled hospital chain to 13.8% of the shares outstanding. Chen paid $9.5 million for the shares at $10.27 per share.
The stock price of Franklin, Tenn.-based CHS traded at $40 per share a year ago.
Chen, who originally made a fortune in online gambling, bought a total of nearly 4.5 million additional shares of CHS in the past month. He is the company's largest shareholder with 15.5 million shares.
The rights plan, a defensive move also known as a “poison pill,” would go into effect if any shareholder attempts to acquire more than 15% of the company's shares.
If triggered, common shares would be replaced by rights certificates that would entitle shareholders to purchase fractions of participating preferred stock for $50 per share with the same economic and voting terms of a common share.
If it takes effect, common shares that now cost slightly more than $10 per share on the open market would cost a takeover buyer nearly five times as much to purchase.
In its release, CHS said the agreement will expire April 1. It has a six-month time limit that gives CHS management and its board an opportunity to explore the sale of the company or blocks of hospitals to a potential buyer.
“The Board is currently exploring a variety of options with private equity sponsors, as well as other potential alternatives that would benefit all stockholders of the company,” CHS CEO Wayne Smith said in the release.
Private equity group Apollo Global Management is reportedly interested in CHS' assets, as are other investors, including real estate investment trusts.
CHS is the nation's second-largest, investor-owned hospital chain with 159 hospitals.
CHS is plagued by $15 billion in debt that is far higher than its peers. That's despite raising $1.2 billion earlier this year through a spinoff of 38 small and rural hospitals into Quorum Health Corp., and the $445 million sale of its stake in a four-hospital joint venture in Las Vegas.
The system has suffered an earnings and stock price slump since last fall.
CHS is coming off a $1.43 billion, or $12.90 per share loss from continuing operations in the second quarter, after taking a noncash write-down of goodwill on the sinking value of hospitals it bought over the years. Excluding the one-time adjustments, adjusted EBITDA in the second quarter fell to $563 million compared with $769 million in the year-earlier quarter. Revenue also declined, by 6% to $4.6 billion.
CHS is being dragged down by the performance of hospitals acquired in 2014 as part of its blockbuster $7.6 billion purchase of troubled Health Management Associates.
Before HMA was bought by CHS, its management used a similar poison pill to try to fend off activist investor Larry Robbins, who ultimately prevailed and forced the company's sale.