Medical Device Daily Staff Writer

Community Health Systems (CHS; Franklin, Tennessee) reported that it will acquire Health Management Associates (HMA; Naples, Florida) for $7.6 billion including the assumption of about $3.7 billion of indebtedness. CHS would acquire all of HMA's outstanding shares with a mix of cash and stock.

Under the terms of the agreement, CHS's purchase will be in the form of a combination of cash and CHS stock currently valued at $13.78 per HMA share.

When completed, CHS would own or operate about 206 hospitals in 29 states with a total bed count of more than 31,000. HMA shareholders will own about 16% of the shares of the combined company following the close of the transaction. In addition to the cash and stock consideration, HMA shareholders would also receive one Contingent Value Right (CVR) for each HMA share they own, which could yield additional cash consideration of up to $1 per share, depending on the outcome of certain matters described in HMA's public filings under the "Legal Proceedings" section.

HMA cut its earnings outlook in April, citing weak patient admissions. The company in December was the subject of a "60 Minutes" television news story that described aggressive policies aimed at increasing admissions. Health Management denied the allegations.

In its first-quarter financial filing, HMA said it had received a subpoena from the U.S. Securities and Exchange Commission for documents involving accounts receivable, billing write-downs, contractual adjustments, reserves for doubtful accounts, and revenue (Medical Device Daily, July 23, 2013) .

In a separate statement in which HMA forecast second-quarter earnings of 10 cents to 1 1 cents a share due to weak hospital admissions, it said that it received additional subpoenas from the U.S. Department of Health and Human Services about emergency room operations that supplemented ones received in 2011. It also received an additional subpoena on physician relationships.

This is now the second major merger deal in the for-profit hospital industry. Last month, Tenet Healthcare (Dallas) said it would buy Vanguard Health Systems (Nashville) in a transaction worth $4.3 billion, including $1.8 billion in cash (MDD, June 25, 2013).

Health Management CEO Gary Newsome was due to retire at the end of the month. Yesterday, the company said John Starcher would be interim president/CEO.

CHS and Health Management expect the merger to close in 1Q14, but under HMA's charter, at least 70% of shareholders must vote on and approve the deal. In addition, the deal is subject to antitrust and other regulatory approvals.

The merger agreement was unanimously approved by the the CHS board. HMA's board also unanimously approved the agreement and recommends that its stockholders approve the merger.

"This compelling transaction provides a strategic opportunity to form a larger company with a diverse portfolio of hospitals that is well positioned to realize the benefits of healthcare reform and to address the changing dynamics of our industry," said Wayne Smith, chairman, president/CEO of Community Health Systems. "Our complementary markets and the ability to form networks in key states, along with the synergies that will be available to us, can create value for the shareholders of our companies, the communities we serve, our employees and medical staffs. We look forward to working with the physicians and employees of HMA to advance the commitment shared across both organizations to pursue clinical excellence and to deliver quality care for patients."

In other dealmaking news, Kinetic Concepts (KCI; San Antonio) has signed a definitive agreement to acquire Systagenix (Gatwick, UK), a provider of advanced wound care (AWC) products, for a purchase price of $485 million. The companies say this combination of Systagenix and KCI will augment KCI's global position as a leading wound care company with a diverse product portfolio dedicated to changing the practice of medicine and improving patient lives around the world.

"The acquisition of Systagenix advances our strategy and vision as the global leader in transformational healing solutions. This major strategic investment will diversify KCI's global portfolio of wound care products and reinforces our competitive advantage as the trusted gold standard in wound healing," said Joe Woody, president/CEO, KCI. "The combination of KCI and Systagenix creates a winning platform across the entire wound care continuum. It increases our ability to address the complete wound healing needs of clinicians and their patients with best-in-class outcomes that help to reduce the overall cost of patient care."

KCI says this transaction provides it with increased access to the $3.4 billion AWC market, which has an overall category growth of 3% to 5%. Systagenix has a meaningful presence in the AWC market and specializes in collagen dressings.

Systagenix has a portfolio of AWC products with a focus on moist wound healing dressings – including Promogran Prisma (collagen dressing), Tielle (foam) and Adaptic (non adherent contact layers).

In connection with the transaction, One Equity Partners (OEP) will spin off an early-stage diagnostics business out of Systagenix, which will be held and operated by OEP as a standalone business following the acquisition.

The transaction is expected to close in 4Q13.

KCI specializes in transformational healing solutions for customers and patients in more than 65 countries around the world.

Systagenix is a maker of wound care products established in 2008 following the acquisition of Johnson & Johnson's professional wound care business by One Equity Partners.

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