Tenet share price up, forms a joint venture with Welsh Carson

Tenet Healthcare Corp. announced on Monday it had agreed to a joint venture with United Surgical Partners International in order the create the largest provider of ambulatory surgery in the U.S.

Tenet, the third-largest publicly traded hospital chain in the U.S., said it had reached an agreement with Welsh, Carson, Anderson & Stowe, USPIs parent, to combine the two companies short-stay surgery and imaging center assets.

The Dallas-based company said it will contribute 44 freestanding surgery centers and 20 imaging centers to the joint venture, while the private-equity company will contribute its entire USPI business, which operates 202 ambulatory surgery centers and 16 surgical hospitals.

Additionally, Tenet will pay around $425 million to Welsh, Carson, Anderson & Stowe and other existing shareholders in order to align the respective valuations of the contributed assets.

Under the terms of the deal Tenet will control a 50.1% stake in the joint venture and assume $1.5 billion of debt. The company would also have to option to acquire full ownership of USPI over the next five years.

Tenet said the joint venture will be the largest provider of ambulatory surgery in the U.S., operating across 29 states. The transaction, which is a subject to regulatory approval, is expected to close by the third quarter of 2015. The company also said the joint venture is expected to realize around $50 million in synergies over the next three years.

Ambulatory surgery centers have been the preferred choice to traditional hospitals lately as patients are looking for less expensive and faster professional help. The centers can offer services at lower cost mainly because they have less operating expenses compared to hospitals.

Separately, Tenet said it had reached an agreement with Welsh Carson to acquire Aspen Healthcare, which operates nine private hospitals and clinics in the U.K., for about $215 million in cash. USPI bough Aspen in 2010, only to spin it off two years later as a part of a restructuring program. After it was separated, however, Aspen remained under the control of Welsh Carson.

Tenet said it would raise around $2.2 billion of debt in order to cover the transactions and refinance USPIs existing debt.

“Tenet is committed to delivering high quality care and clearly values its partners, and together we will further establish USPI as the innovative leader in providing ambulatory solutions for healthcare systems,” said USPIs Chief Executive Bill Wilcox.

Tenet dropped 1.49% on Friday and closed at $49.62 in New York, marking a one-year increase of 23.46%. The company is valued at $4.89 billion. The stock jumped 4.78% on Monday during pre-market trading.

According to the Financial Times, the 18 analysts offering 12-month price targets for Tenet have a median target of $57.50, with a high estimate of $85.00 and a low estimate of $45.00. The median estimate represents a 15.88% increase from the last closing price.