Tenet Healthcare Corp (THC): Why Is This Buyout a Sign of Things to Come?

Potential Impact on the Competition

If the combined company is able to realize these synergies, it will find itself on a more level playing field with competitors like HCA Holdings Inc (NYSE:HCA). Conversely, these competitors could make scale-boosting moves of their own. In addition to accelerating ongoing drives to develop higher-margin outpatient care centers, companies like HCA may begin to look for smaller acquisition targets in especially fragmented markets. Investors may wish to look at smaller public healthcare firms in areas that lack dominant healthcare providers. Such firms could become more attractive in the wake of this deal.

Long-Term Outlook and Ways to Play

It should be noted that this deal faces legal hurdles that could alter its complexion or scuttle it altogether. Indeed, these issues could be the reason for the persistent premium in Vanguard Health Systems, Inc. (NYSE:VHS)’s shares. Although no formal lawsuits have been filed, the “investigations” that surround the deal could become problematic. Since a customary shareholder vote is required to advance the transaction, a prolonged battle that convinces shareholders to vote against the deal could force Tenet Healthcare Corp (NYSE:THC) to come back with a higher offer.

Assuming that this does not occur, investors can play this deal with a long position in Vanguard Health Systems, Inc. (NYSE:VHS). Aside from the arbitrage premium, the transaction’s inherent synergies cannot be ignored. Savvy investors may also wish to begin looking for other healthcare stocks that seem ripe for consolidation. Given the rapid changes that continue to sweep the industry, those who position themselves ahead of further consolidation could reap the rewards.

The article Why Is This Buyout a Sign of Things to Come? originally appeared on Fool.com and is written by Mike Thiessen.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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