Blackstone, TPG Left Off The List

HCA Inc. has agreed to be bought for $33 billion, but it isn’t necessarily satisfied. The Nashville, Tenn.-based hospital operator propped the door open for competing bids by insisting that the merger agreement include a list of approved equity syndication partners.

The list itself is being kept confidential, but sources say that it does not include large private equity firms like The Blackstone Group or Texas Pacific Group. If they want in on the HCA deal, they’ll have to submit a separate—and richer—offer.

“We’ve come across [approved syndication lists] in larger deals when, in general, companies want to preserve the opportunity for two or three groups to be able to come in and make competing bids,” said Stephen Pagliuca, a managing director with Bain Capital.

What this means is that Bain, Kohlberg Kravis Roberts & Co. and Merrill Lynch will need to find alternate avenues for equity syndication. Each firm is on the hook for approximately $1.8 billion, which would represent nearly 20% of the current Bain Capital fund and around 8% of KKR’s latest offering. Both funds are technically allowed to make such commitments, but are unlikely to do so.

Types of approved syndication partners are believed to be limited partners of consortium funds, participating lender banks and hedge funds.

Approved syndication lists are not unusual in LBO deals, but typically involve either debt syndication or future syndication of management/founder equity. Equity sponsors, on the other hand, are mostly given carte blanche. The difference with HCA was the $33 billion pricetag, which automatically limits the number of potential competitors to just a handful.

HCA isn’t commenting on the approved syndication list, but did reference it in Section 7.10 (c) of the merger agreement it filed with the SEC. —D.P.