HCA nabbed in record buyout

In a deal scheduled to close in the fourth quarter, Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity have agreed to acquire hospital operator HCA Inc. for about $33 billion, which includes $11.7 billion of debt.

If the transaction stands, it would rate as the largest buyout on record, dethroning KKR’s $25.1 billion buyout of RJR Nabisco Inc. as the largest PE-backed deal. The proposed deal comes on the heals of several other announced investments with swelling purchase prices, such as the $22 billion offer to take Kinder Morgan private, and the $14 billion carveout of General Motor’s GMAC unit.

The price for HCA works out to $51 per share, an 18% premium to the stock’s closing price on July 18, 2006, which is the last full day of trading before reports were published stating that the company was in play.

HCA’s board of directors last week approved the buyout and will recommend that HCA’s stockholders adopt the agreement. Pending shareholder approval, regulatory approval and satisfaction of customary closing conditions, the transaction is scheduled to be completed in the fourth quarter. The lofty figure implies that additional co-investors could be brought in.

Per terms of the agreement, HCA has 50 days in which it is permitted to try and attract a higher price, and the company’s board “intends to actively solicit superior proposals during this period,” according to a statement released by HCA. The Blackstone Group, which recently closed a record $15 billion buyout fund, may submit a bid, according to published reports.

HCA Founder Dr. Thomas Frist Jr., brother of Senate Majority Leader Bill Frist (R-Tenn.), and members of the company’s senior management team have agreed to roll over portions of their equity into the deal. In all, HCA’s directors and officers own a combined 6.7% of the company.

Nashville, Tenn.-based HCA, through direct and indirect subsidiaries, owns and operates 176 hospitals and 92 freestanding surgery centers and facilities that provide outpatient and ancillary services. The company’s facilities are located in 21 states, England and Switzerland.

“The key catalyst for the transaction is the difficult industry operating environment, lack of organic growth at HCA, depressed valuations and a history of prior LBO transactions,” according to a research note written by Lehman Bros. analyst Adam Feinstein.

Recent PE-backed hospital deals include GTCR Golder Rauner’s $555 million sale of LifeCare Holdings to The Carlyle Group in July 2005 and Welsh Carson, Anderson & Stowe’s $2.3 billion take-private of Select Medical Corp. earlier that same year. —Ari Nathanson