Tenet Healthcare Corporation
) publicized its financial and strategic plans comprising
acquisitions, share repurchases, debt repayment and a reverse stock
split. With these plans, the company is aiming at enhancing
business growth and optimizing capital structure, thereby boosting
Per the plans, Tenet Healthcare will pursue inorganic growth by
undertaking acquisitions worth $400 million in the near term. The
company will pursue deals that will strengthen its main business
lines - acute care hospitals, outpatient facilities, and business
Toward this aim, Tenet Healthcare already has two transactions
lined up. Conifer - one of Tenet Healthcare's subsidiaries - is
acquiring InforMed Health Care Solutions, which will widen its
service portfolio. The company is also conducting negotiations to
purchase California-based Emanuel Medical Center.
Additionally, Tenet Healthcare announced a new $500 million
share repurchase authorization, which is expected to be fully
utilized by the end of 2013. Of late, the company has been actively
repurchasing shares from the open market to enhance shareholder
value. Moreover, complete utilization of the new authorization will
take the total expenditure on share repurchases to $1.2 billion in
a little more than 2 years.
Tenet Healthcare is also implementing a reverse stock split on
October 11, whereby one new share will be issued in place of four
existing shares. This, combined with the planned repurchases, will
sharply reduce the outstanding share count.
Moreover, Tenet Healthcare plans to issue new debt worth $800
million in order to capitalize on the historically low interest
rates. This includes private offerings of 4.75% senior secured
notes due 2020, worth $500 million and 6.75% senior unsecured notes
due 2020, worth $300 million.
The proceeds from the issue will be used to reduce Tenet
Healthcare's bank overdraft, fund the planned acquisitions, and
repay outstanding 7.375% debt worth $216 million, which is due in
February 2013. Remaining proceeds will be used for general
While the acquisitions will strengthen Tenet Healthcare's core
business, residual proceeds from the debt issue will boost
financial flexibility. Meanwhile, share buyback will enhance
earnings per share and boost shareholder value. Thus, overall the
plan is expected to be beneficial for the company.
Tenet Healthcare, which competes with
Community Health Systems Inc.
), carries a Zacks #2 Rank, which translates into a short-term Buy
rating. We maintain a long-term 'Outperform' recommendation on the
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