S ummary of Final Bids For a Potential Partner Presented to the - - PowerPoint PPT Presentation
S ummary of Final Bids For a Potential Partner Presented to the Citrus County Hospital Board and Citrus Memorial Health Foundation Presented By: Trey Crabb Il Y ou Robert Jaeger Managing Director S enior Vice President Assistant Vice
S ummary of Final Bids For a Potential Partner Presented to the Citrus County Hospital Board and Citrus Memorial Health Foundation Presented By: Trey Crabb Managing Director tcrabb@ ziegler.com S eptember 26, 2013 Il Y
S enior Vice President ilyou@ ziegler.com Robert Jaeger Assistant Vice President rj aeger@ ziegler.com
I. Overview of Potential Partners 3 II. S election Criteria 11 III. Transaction Criteria in RFP 14 IV. Preliminary Net Proceeds 18 V. Transaction Value 20 VI. Non-Financial Considerations 23
teps 27
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eptember 5th – CCHB votes to allow each of the four finalists (HCA, HMA, RCHP and TGH) to submit Best and Final responses to its Request for Proposal by S eptember 18th
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eptember 18th – Joint Meeting of the CCHB and CMHF to listen to presentations from finalists followed by Q&A (RCHP did not present)
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eptember 20th – RegionalCare formally withdraws proposal
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eptember 26th/ 30th – Joint Meeting of the CCHB and CMHF to review and discuss final proposals from Potential Partners
October 1st – Joint Resolution of Cooperation deadline set by
CCHB and CMHF to select final bidder and transaction structure
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Founded: 1977
Headquarters: Naples, FL
Owns and operates 71 hospitals
23 hospitals in Florida
Located in 15 states
42,000 employees
11,000 licensed beds
Interim CEO and Interim President: John S tarcher
Interim CFO: Gary Bryant
EVP of Development: Peter Lawson
Business Description Management Financial Summary ($ in Millions) Comments
S uburban/ Rural Focus
Recent M&A Activity:
8/ 20/ 2013 –HMA executed a letter of intent to lease Bert Fish Medical Center in New S myrna Beach, FL
7/ 29/ 2013 –CHS entered into a definitive merger agreement to acquire HMA for $7.6 billion
6/ 11/ 2013–HMA executed a letter of intent to lease Munroe Regional Medical Center located in Ocala, FL
2011A 2012A 2013E 2014E Total Revenue 5,087.6 5,878.2 6,884.1 6,929.1 Growth Over Prior Year 15.5% 17.1% 0.7% EBITDA 835.9 972.2 844.8 932.1 Margin % 16.4% 16.5% 12.3% 13.5% Operating Income 563.0 614.3 444.1 538.3 Margin % 11.1% 10.5% 6.5% 7.8% Net Income 178.7 164.3 154.8 203.2 Margin % 3.5% 2.8% 2.2% 2.9% For Fiscal Year Ending Dec. 31,
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Founded: 1968
Headquarters: Nashville, TN
Largest public for-profit hospital management co.
Owns and operates 162 hospitals and 113 freestanding surgery centers
40 hospitals in Florida
Located in 20 states and London, England
204,000 employees
41,800 licensed beds
Chairman and CEO: Richard Bracken
President and CFO: R. Milton Johnson
S VP and Chief Development Officer: Joseph S
President, National Group – Charles Hall
President, HCA West Florida: Peter A. Marmerstein
CFO, HCA West Florida: Timothy Burroughs
Business Description Management Financial Summary ($ in Millions) Comments
Urban/ S uburban Focus
Recent M&A Activity:
7/ 18/ 2013 –S igned definitive agreement to acquire Memorial Hospital of Tampa, Palms of Pasadena Hospital and Town & Country Hospital from IAS IS Healthcare LLC
2011A 2012A 2013E 2014E Total Revenue 29,682.0 33,013.0 36,956.1 38,428.3 Growth Over Prior Year 11.2% 11.9% 4.0% EBITDA 5,803.0 6,492.0 6,378.9 6,829.4 Margin % 19.6% 19.7% 17.3% 17.8% Operating Income 4,338.0 4,813.0 4,679.4 5,089.9 Margin % 14.6% 14.6% 12.7% 13.2% Net Income 2,465.0 1,605.0 1,497.3 1,754.5 Margin % 8.3% 4.9% 4.1% 4.6% For Fiscal Year Ending Dec. 31,
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Note: HCA also has hospitals in Alaska and United Kingdom, not shown in the map
Founded: 1927
Headquarters: Tampa, FL
Owns and operates 1 hospital
S erves 12-county region of West Central Florida
6,600 employees
1,018 licensed beds
President and CEO: James Burkhart, DS c
Executive Vice President and COO: Deana Nelson
Executive Vice President and CFO: S teve S hort
Executive Vice President and CMO: S ally Houston
Business Description Management Financial Summary ($ in Millions) Comments
S ingle site facility
Recent M&A/ Affiliation Activity:
09/ 24/ 2013 – TGH and Florida Hospital’ s Tampa Bay Network announce partnership to j ointly develop new clinical programs and services.
Operates 1 of only 3 burn centers in Florida
Among nation’ s leading organ transplant centers
Primary teaching hospital for US F - Trains over 300 medical residents from the US F Morsani College of Medicine
2009A 2010A 2011A 2012A Total Revenue 945.9 1,033.6 1,083.9 1,036.8 Growth Over Prior Year 9.3% 4.9% (4.4%) EBITDA 72.7 99.6 62.6 74.1 Margin % 7.7% 9.6% 5.8% 7.1% Operating Income 18.7 44.6 7.2 11.4 Margin % 2.0% 4.3% 0.7% 1.1% Net Income 39.3 66.5 22.9 48.2 Margin % 4.2% 6.4% 2.1% 4.6% For Fiscal Year Ending Sep. 30,
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“ What is best for the people of Citrus County” Elimination or guaranty of outstanding debt - $55 million Funding or guaranty of pension liability - $14.6 million Loss of control of the Hospital Experience Quality of care Charity care
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Financial resources and credit strength Antitrust concerns Fulfill RFP criteria Transaction Value Net proceeds at closing
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# RFP Criteria HCA Purchase/ Lease HMA Purchase/ Lease/ JV TGH Merger
1 Will Of f er Employment t o All Current Employees Yes Yes Yes 2 Will Keep Hospit al Name Yes Yes Yes 3 Agree t o No Changes in Medical S t af f Bylaws and Privileges Yes Yes Yes 4 Will Pay All Transact ion Cost s Yes Yes Yes 5 Will Assume All Hospit al Cont ract s (2) Yes Yes Yes 6 If Cont rolled by a S ubsidiary, Guarant y of all Obligat ions Yes Yes Yes 7 Agree t hat S uccessor are Obligat ed t o Lease or Purchase Agreement Yes Yes Yes 8 Will Give Full Credit f or Prior S ervice of Employees Yes Yes Yes 10 Will Maint ain/ Expand S cope of S ervices Yes Yes Yes 11 Will Complet e Due Diligence on Time Yes Yes Yes 12 Will Complet e Def init ive Agreement on Time Yes Yes Yes
Transaction Criteria in RFP S ummary of responses to transaction criteria
(1)
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(1) HMA requires advance estimate and will pay for those that are normal, customary and commercially reasonable for comparable transactions (2) Buyers have said they will assume the contracts, subject to buyers due diligence review. (3) TGH has provided a conditional guaranty of the lease. Will have to be repaid if Florida Supreme Court were to rule that Chapter 2011-256, Laws of Florida, is constitutional or any court were to enter an order invalidating the Lease between the CCHB and the CMHF.
(3)
# RFP Criteria HCA Purchase/ Lease HMA Purchase/ Lease/ JV TGH Merger
13 If not purchased, willing t o Pay Annual Payment in Lieu of Taxes Equal t o Propert y Taxes Yes Yes Yes 14 Will Not S eek Any Tax Abat ement s Yes Yes N/ A 15 Will File Pre-Merger Forms wit hin 7 days of LOI and Pay All Relat ed Fees (If required) Yes Yes Yes 16 Knowledgeable of Laws of Florida including 155. 40 Yes Yes Yes 17 Will Out line Capit al Appropriat ion Process and Commit ment Yes Yes Yes 18 Will Report Compliance of Transact ion Requirement s Annually t o Board Yes Yes Yes 19 Will Outline S t eps to Prot ect f rom Compet it ion and Reduce Out migrat ion Yes Yes Yes 20 Will Provide Inf ormat ion on Qualit y of Care, S t eps t o Improve at Hospit al Yes Yes Yes
Transaction Criteria in RFP S ummary of responses to transaction criteria
(1)
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(1) TGH has indicated payments as follows: $0 year1, $250k year 2, $500k year 3, $750k year 4 and $1mm in years 5-20.
# RFP Criteria HCA Purchase/ Lease HMA Purchase/ Lease/ JV TGH Merger
21 Will Provide Plan to Increase Availability and Access of Care Yes Yes Yes 22 Will Assume Exist ing Policies and Procedures in Place Regarding Indigent and Charit y Care Yes Yes Yes 23 Has Financial Resources t o Complet e Transact ion and Compet e in Market Yes Yes Yes 24 Can Provide Examples of Turning Around Dist ressed Hospit als Yes Yes Yes 25 Provide Evidence on Ef fort s t o Provide and Maint ain Qualit y Healt hcare Yes Yes Yes 26 Disclosure of Any Mat erial Ant i-Trust Risk Yes Yes Yes 27 If Non-Cont rolling Part ner, Willing t o Guarant y Debt and Pension Obligat ions N/ A N/ A Yes 28 S ubmit a pre-paid lease opt ion if submit t ing purchase opt ion Yes Yes N/ A 29 Will Maint ain a Full S ervice Communit y Care Hospit al Yes Yes Yes
Transaction Criteria in RFP S ummary of responses to transaction criteria
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(1) TGH has not purchased, leased or merged with a distressed hospital and turned it around but TGH management is experienced in these matters in their prior work. (2) TGH has provided a conditional guaranty of the lease. Will have to be repaid if Florida Supreme Court were to rule that Chapter 2011-256, Laws of Florida, is constitutional or any court were to enter an order invalidating the Lease between the CCHB and the CMHF. (1) (2)
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Note: Unless otherwise noted, all balance sheet items are as of July 31, 2013 as reported on the CMHF comparative balance sheet. (1) Debt is comprised of both third party debt obligations and estimated long-term professional liability of approximately $52.9 million and $2.0 million, respectively, as of the July 31, 2013 balance sheet. (2) Additional minimum pension liability amount reflects the expected cost (pessimistic) from the actuarial study as of June 30, 2013 provided by CMHF management, assuming the frozen plan is left in operation. (3) Cash & cash equivalents and short-term investments had balances of approximately $5.7 million and $7.0 million, respectively, as of July 31, 2013 balance sheet. (4) Net retained working capital includes net patient receivables and other receivables less accounts payable, accrued expenses and other payables. This working capital is not purchased and will require a run out to receive funds. Collection costs are not included. (5) Bond assets include the debt service reserve fund and the debt service fund. (6) Other assets limited as to use are comprised of professional liability fund and development fund of approximately $1.9 million and $2.6 million, respectively, as
HCA Purchase/ Lease HMA Purchase/ Lease HMA JV (80/ 20) TGH Merger 1 Purchase Price $140,000,000 $130,000,000 $104,000,000 $0 2 Working Capital Adj ustment 5,663,673
Purchased Working Capital
5,254,611 4 Total Consideration $145,663,673 $135,254,611 $109,254,611 $0 5 Less: Debt Outstanding
(1)
(54,900,529) (54,900,529) (54,900,529)
Less: Additional Pension Liability
(2)
(14,674,728) (14,674,728) (14,674,728)
Plus: Cash and ST Investments
(3)
12,743,967 12,743,967 12,743,967
Plus: Net Retained Working Capital
(4)
7,358,414
Plus: Funded Depreciation 386,058 386,058 386,058
Plus: Bond Assets
(5)
5,750,453 5,750,453 5,750,453
Preliminary Net Proceeds $94,968,894 $91,918,246 $65,918,246 $0 12 Other Assets Limited as to Use
(6)
4,555,872 4,555,872 4,555,872
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The Transaction Value takes into consideration additional impacts a
purchase/ lease will have on the community
Transaction Value includes the following:
Purchase Price –Amount paid for the Hospital
Net Working Capital – Value of identified current assets less identified current liabilities
Cash Released at Closing – Cash and cash equivalents plus other identified assets retained or monetized by the seller at closing
Capital Commitment –Amount of capital the buyer will guarantee to invest into the purchased facilities over a period of time
Guaranty of Obligations (if not paid with Purchase Price) - A buyer may guarantee certain obligations of the seller in a cashless transaction (merger/ member substitution)
Elimination of Ad Valorem Tax – District will no longer need to collect an ad valorem tax from its taxpayers
Pay Property Taxes – If buyer is for-profit, they will be required to pay property taxes (in the case of a not-for-profit buyer, a payment may be made in lieu of property taxes)
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Note: All balance sheet items are as of July 31, 2013 as reported on the CMHF comparative balance sheet. (1) Does not reflect the 20% share of cash flows from ongoing earnings. (2) Will have to be repaid if Florida Supreme Court were to rule that Chapter 2011-256, Laws of Florida, is constitutional or any court were to enter an order invalidating the Lease between the CCHB and the CMHF. (3) Conditional guaranty of the pension is not mentioned in TGH's letter of intent dated 9/18/2013 (4) Assumes 20 years of average annual ad valorem tax of $7.6 million (calculated as the 5-year historical average from 2008 - 2012) (5) Assumes 20 years of estimated annual property taxes of $2.5 million. (6) TGH outlined specific payments for 20 years equal to a total of $17.5million capped payment of $1million annually. (7) This reduction of ad valorem tax would be eliminated if Florida Supreme Court were to rule that Chapter 2011-256, Laws of Florida, is constitutional or any court were to enter an order invalidating the Lease between the CCHB and the CMHF.
HCA Purchase/ Lease HMA Purchase/ Lease HMA JV (80/ 20)
(1)
TGH Merger 1 Purchase Price $140,000,000 $130,000,000 $104,000,000
Value of Retained Equity
Working Capital Adj ustment 5,663,673
Purchased Working Capital
5,254,611
Cash Available at Closing 18,880,478 18,880,478 18,880,478
Sub Total 164,544,151 154,135,089 154,135,089
Net Retained Working Capital
7,358,414
5-Year Capital Commitment 45,000,000 50,000,000 40,000,000 65,000,000 (2) 9 Conditional Guaranty of Lease
10 Conditional Guaranty of Pension
(3)
11 Elimination of Ad Valorem Tax
(4)
152,000,000 152,000,000 152,000,000
Reduction of Ad Valorem Tax
(4)
13 Pay Property Tax
(5)
50,000,000 50,000,000 50,000,000
Payment in Lieu of Property Tax
(6)
15 Total Transaction Value 411,544,151 413,493,503 403,493,503 293,815,257
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(1) Subject to standard hiring protocols such as drug screens and background checks.
HCA Purchase/ Lease HMA Purchase/ Lease/ JV TGH Merger 1 For-Profit or Not-For-Profit For-Profit For-Profit Not-For-Profit 2 Quality of Services Equal to or Greater Equal to or Greater Equal to or Greater 3 Local Governing Board Advisory Only Advisory Only Subj ect to Reserved Powers 4 Charity Care Equal to or Greater Equal to or Greater Equal to or Greater 5 Employee Retention
(1)
Retain All at Closing Retain All For Min. 1 Year Retain All at Closing 6 Maintain Core Services Yes Yes Yes 7 Medical Staff Retention Retain All Retain All Retain All 8 Will Not Relocate Hospital Out of Market Yes Yes Yes 9 Preserve Hospital Name Yes Yes Yes 10 Annual Reporting/ Enforceable Covenants Yes Yes Yes
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HCA Purchase/ Lease HMA Purchase/ Lease HMA Joint Venture TGH Merger 1 Board Type Local Advisory Board TBD Board of Directors Local Board of Directors 2 Number of Members TBD TBD 6 13 3 Board Member Composition County Residents and Physicians TBD 3 appointed by HMA 3 appointed by CCHB 3 from current CMHF (roll off 1/ year) 3 from current CCHB (roll off 1/ year) 2 from Medical Staff, including Chief 4 appointed TGH 1 appointed by USF 4 Functions Provide input and oversight in key matters such as quality and planning initiatives, as well as medical staff matters TBD Authority over material matters as specified in the Operating Agreement Substantial input as to the governance of CMH, subj ect to Reserved Powers of TGH
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The governing board's acceptance of a proposal for sale or lease must include a description of how the sale or lease satisfies each of the following requirements:
155.40 (7)(a) 1 The sale or lease represents fair market value, as determined by a certified public accounting firm or other qualified firm pursuant to subsection(5). If leased at less than fair market value, the governing board shall provide a detailed explanation of how the best interests of the affected community are served by the acceptance of less than fair market value for the lease of the hospital. 2 Acceptance of the proposal will result in a reduction or elimination of ad valorem or other taxes for taxpayers in the district , if applicable. 3 The proposal includes an enforceable commitment that programs and services and quality health care will continue to be provided to all residents of the affected community, particularly to the indigent, the uninsured, and the underinsured. 4 Disclosure has been made of all conflicts of interest, including, but not limited to, whether the sale or lease of the hospital or health care system would result in a special private gain or loss to members of the governing board or key management employees
the board of any successor private corporation. Conflicts of interest, if any, with respect to experts retained by the governing board shall also be disclosed. 5 Disclosure has been made by the seller or lessor of all contracts with physicians or other entities providing health care services through a contract with the seller or lessor, including all agreements or contracts that would be void or voidable upon the consummation of the sale or lease. 6 The proposal is in compliance with subsections (8) and (9) of 155.40.
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Joint Resolution of Cooperation expires S
eptember 30, 2013
Potential for a bond default – Days Cash on Hand and/ or Debt
S ervice Coverage may be insufficient
Pension remains underfunded by $14.6 million CMH has limited access to capital – Current credit rating is a
non-investment grade of “ B3” Negative outlook by Moody’s
Potential need to continue to collect and/ or raise taxes to
cover cash flow shortfalls
Risk of losing potential partners to other opportunities
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