Shareholders challenge HCA buyout
HCA Inc. shareholders have gone to court seeking to stop the planned $21.3 billion leveraged buyout of the nation’s largest for-profit hospital operator.
At least four lawsuits have been filed in chancery court in Nashville, where the company is based, and analysts and HCA officials say they expect more over the deal to take the company private in one of the largest leveraged buyouts ever.
The lawsuits aren’t likely to halt the buyout, though shareholders seeking a higher payout under the deal could get what they’re after.
“It’s almost inevitable there’s going to be disagreement about price with respect to something this huge,” said Donald Langevoort, who teaches corporate and securities law at Georgetown University.
“There’s a lot of historical evidence that management doesn’t pay top dollar to its shareholders and that some combination of negotiation and litigation will result in the deal being sweetened for the shareholders ? meaning they’ll up the price they’re willing to pay the shareholders in the buyout.”
The lawsuits allege the company’s board of directors failed in their duty to shareholders and are not paying them enough under the transaction. The deal called for stockholders to receive $51 cash for each share of common stock, 18 percent above the stock’s last closing before the agreement was made public.
One of the lawsuits, filed on behalf of the Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust and other shareholders, says that the HCA board unfairly kept shareholders in the dark over the deal and didn’t try to get the highest share price available.
The lawsuit asserts there’s an “imbalance and disparity of knowledge and economic power” between HCA’s board and shareholders ? making it unfair for the board to pursue such deals because its members “reap disproportionate benefits to the exclusion of maximizing stockholder value.”
Richard M. Bracken, HCA’s president and chief operating officer, said during a conference call with HCA directors on Wednesday that he expected such lawsuits.
“It is inherent in these types of transactions that lawsuits will follow, so expect to see a lot of that activity in the near future,” Bracken said. “The way our special committee structured this transaction is that there will be a period of time when they will aggressively seek alternative organizations to see if they are interested in bidding on our company.
“Know that this is an important part of the process in deriving maximum value for our current shareholders,” he said.
The agreement includes a provision that gives the company the right to entertain better offers until Sept. 12.
Langevoort said many public companies are incorporated in the state of Delaware ? which is where most shareholder litigation usually occurs ? and that courts there have often found favor with plaintiffs in these sorts of shareholder cases.
He said he expects more HCA shareholders to file similar lawsuits in both state and federal courts and that the company is likely to take a hard line initially in defending the price it’s offering shareholders.