Today I interviewed Al Stubblefield, president of Baptist Hospital, on the cancellation of its purchase of West Florida Hospital. I wanted to hear what caused the once-touted agreement to fall apart and why was there an $8 million cancellation fee:
“You had a willing buyer and a willing seller. However, it was the worst time in past 75 years to do this type of acquisition. In November, mergers and acquisitions that were priced less than a billion were down 75 percent from the year before. When Lehman Brothers went under, the entire bond market shutdown.
If we had scheduled going to bond market six week sooner – Sept. 6, 2008, then we would have been fine.
We agreed on a purchase price with HCA (owner of West Florida Hospital) in February (2008). For the next three months or so, the attorneys hammered out the contract. Normally, you would get a bridge loan for this type of deal that gives the seller a level of certainty that the deal will close. Banks will put together a consortium and finance the loan (about $300 million) – which may or may have to be used while the bonds are sold.
We went to 25 banks and they each said no. However the bond market was still active. Our advisors were reasonably assured that we would be able to sell the bonds. Short of another 9/11, the investment bankers told us that they had a high degree of confidence of closing the deal….little did they know we would have an economic 9/11.
Without the bridge loan, HCA felt announcing the purchase put West Florida Hospital at significant risk if the deal fell through. We agreed to pay $4 million up front, which would be applied towards the purchase, and another $4 million if the purchase was canceled.
We felt good about the bond market up until October. We had been given favorable bond ratings so we knew the bonds would be investment grade. In early October, we planned a road trip to the major bond funds in Chicago, Boston and New York to tell them about the bonds and our acquisition.
Our investment bankers called the last week of September and said we needed to hold off on the trip for two or three weeks. The bond market had completely dried up. There was no bond market.
We spent November and December looking at other options – partnering with others, owner financing, etc. We couldn’t come up with an option that gave HCA the necessary comfort level.
At 4 pm on 12/31/08, HCA told us they were canceling the agreement. At 8 a.m. on Jan. 1, 2009, they made the announcement.
I don’t begrudge HCA. Their management team couldn’t stay in limbo any longer – while patients, employees and doctors walked out the door. We had hoped for a 30-day extension, but completely understand why HCA did what they did.
Baptist is a highly leverage organization – always has been. We had hoped this acquisition would help us grow up of it, but we are confident we still will.
Gulf Breeze Hospital is going gangbusters. Admissions are up 25 percent. The ER had its busiest weekend ever last weekend, 130 visits.
Andrew Institute is attracting a caliber of physician that we never would have attracted. Today 18 residents are touring Andrews in hopes of getting one of the two fellowships offered there. Andrews is performing just as we thought it would.
We still plan to some day expand into Southwest Escambia County.
Baptist is here to stay. We will continue to offer the quality of service that won the Baldridge award. We will continue to be one the best places to work – as measured by Fortune magazine the past six years. We will continue to have same the high patient satisfaction scores. We have the same mission, same values and now the same location.â€
