Thursday, December 14, 2017
Business

After sale to HMA, Bayfront finds its new parent may be acquisition target

It made sense at the time.

St. Petersburg's Bayfront Medical Center agreed to be acquired this spring by a publicly traded hospital chain. The belief was that an independent hospital was more secure during such chaotic times in health care if it was backed by the nation's third-largest for-profit hospital company.

Careful what you wish for.

Naples-based Health Management Association, a chain of 70-plus hospitals that acquired Bayfront in April, now finds itself the target of growing rumors that it may be bought. Nothing is official. But after purchasing a majority stake in Bayfront, HMA adopted a legal strategy called a "poison pill" to discourage a hostile takeover. Its CEO recently announced he will step down next month. And the company is fending off its largest investor, a hedge fund, that wants to dump HMA's board of directors in favor of a new board more to the investor's liking.

Bayfront bargained for none of this financial stress. Avoiding such uncertainty, in fact, is exactly why Bayfront's leadership thought it best to sell itself in the first place.

So what happens to Bayfront's carefully crafted sale if HMA is acquired? The original deal included the spinning off of a new charitable organization called Bayfront HERO (Bayfront Health Education & Research Organization) to protect and advance Bayfront's legacy of community service in St. Petersburg.

Bayfront did not respond to a request for comment about HMA. But in a recent interview, new Bayfront CEO Kathryn Gillette indicated her plate was full just running the St. Petersburg hospital and expanding a new "Bayfront Health" brand to other HMA hospitals.

Here's what we do know about HMA's status.

Hedge fund investor Glenview Capital Management, HMA's largest investor with a 15 percent stake, proposed ousting the company's board and management after criticizing its leadership's "substandard strategic and financial approach."

"There is significant room for improvement at HMA," Glenview stated. The hospital company completed a "lost decade" in 2012, the hedge fund said, returning less than 1 percent to investors annually during the prior 10 years.

Tough talk. But Glenview insists it is not an aggressor.

"Our culture at Glenview is to analyze the facts in front of us, and to try to remove emotion or bias from the equation," the hedge fund stated. "In Hollywood terms, we are more Mr. Spock than William Wallace. We were not born to lead fights, but we are simply programmed to follow the logic trail and act accordingly."

HMA, in turn, has hired Morgan Stanley and Weil, Gotshal & Manges LLP to review its "strategic alternatives" while also hunting for a successor to outgoing CEO Gary Newsome. And the company on Friday issued a statement basically asking investors to ignore the hedge fund because HMA already was reviewing its future options.

Who might buy HMA? Rumors so far focus on Tennessee-based Community Health Systems Inc. as a likely candidate. Analysts value such a deal, if it were to happen, at close to $9 billion.

Hospital deal speculation is rife in the wake of Tenet Healthcare Corp.'s $1.73 billion agreement to acquire Vanguard Health Systems Inc. It's part of a consolidation trend expected to grow with the arrival of the new health care law and a national increase of patients who will have coverage.

Until HMA's future gains some clarity, Bayfront may be in for a bumpy ride.

Robert Trigaux can be reached at [email protected]

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