HCA Shareholders Approve $21.3 Billion Buyout

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HCA Inc. (HCA) shareholders on Thursday overwhelmingly approved a $21.3 billion leveraged buyout that will take the nation's largest for-profit hospital chain private.

Company officials announced in a meeting at its Nashville headquarters that 283.2 million shares, or 72.9 percent, were voted for the deal while 32 million, or 8.2 percent, were opposed. There are about 388 million shares outstanding but only 82 percent of them were present for the vote, HCA officials said.

The company announced in July that its board approved the buyout offer by current HCA management and Hercules Holding II LLC, a consortium of private investment funds including Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity.

In order to seal the deal, which the company expects to complete by the end of the year, HCA had to win approval from a majority of shareholders.

The buyout deal calls for stockholders to receive $51 cash for each share of common stock, 18 percent above the stock's closing price before the agreement was made public.

Shares of HCA rose 4 cents to $50.85 in trading on the New York Stock Exchange.

The deal also involves $16 billion in new debt to be borrowed for the buyout and the assumption of $11.7 billion in existing debt.

A shareholder suit that challenged the buyout was settled earlier this month.

HCA operates 172 hospitals and 95 freestanding surgery centers and other facilities that provide outpatient services in 21 states, Britain and Switzerland.

The buyout comes as HCA struggles with sliding earnings, slow growth and escalating expenses for the uninsured.

By eliminating the constant scrutiny from Wall Street, a hospital is free to take on expensive, long-term projects while getting its growth and expenses back in order, said Les Funtleyder, an industry analyst for New-York based Miller Tabak & Co.

"You don't have to deal with the pressure of quarterly earnings, so you can focus on the long-term," he said.

The company has already sold nearly $5.7 billion of debt to finance the buyout. Analysts say a good indicator of the company's health, if it goes private again, will be how the bonds trade on the market.

A management-led buyout 17 years ago took HCA private for three years. At the time, HCA was cutting costs and worried about a hostile takeover.

John Ransom, an analyst with Raymond James & Associates, says it's also very likely HCA could try to go public again in the next five to seven years.

"The buyout investors have to realize their investment at some point," Ransom said. "With a company like HCA, you either would have to take it public or sell it to another buyer."

HCA operates 172 hospitals and 95 freestanding surgery centers and other facilities that provide outpatient services in 21 states, Britain and Switzerland.

Thomas Frist Jr., who co-founded the hospital chain in 1968 with his physician-father, will put nearly 16 million shares of HCA stock worth $816 million back into the company, boosting his ownership stake to about 15 percent from the current 4 percent.

At least six members of HCA's senior management have agreed to invest a total of at least $46.5 million in cash or roll over a portion of their stock options into the deal.

Frist is the brother of outgoing Senate Majority Leader Bill Frist, a Tennessee Republican who is under federal investigation for selling HCA shares last year at about the same time that insiders were selling and the stock hit a 52-week high.

Frist, who is considering a 2008 presidential bid, has said he didn't know in advance the hospital chain planned to go private, and that he would not benefit from the deal because he owns no HCA stock. He denies wrongdoing and says he got rid of the stock to avoid any appearance of a conflict of interest as he eyes a presidential run.