HCA announces public offering of stock in record-setting deal

For-profit hospital chain HCA, which had taken itself off the stock market in what was then the largest U.S. leveraged buyout deal of all time, is going public again with what is expected to be the largest private equity-backed initial public offering of all time. On May 7, HCA filed its IPO with the Securities and Exchange Commission to trade its shares on the New York Stock Exchange.

The filing does not list the number of shares, expected price per share, or when the IPO will occur. However, the company said it expected to raise $4.6 billion. That would be $1.9 billion more than a $2.7 billion IPO for a Japanese bank in 2006, the previous record for an offering backed by private equity companies that had previously executed a leveraged buyout.

A leveraged buyout is a deal in which a company trading its stock publicly goes back into private hands by buying all its stock, usually through a combination of a small amount of cash and a large amount of debt. The companies financing the deal are referred to as private-equity companies. The deal is done with the intention of someday taking the company public again.

In 2006, Nashville, Tenn.-based HCA was taken off the stock market through a $33 billion buyout, led by various private equity firms and members of the company's founding Frist family. It's still the second-largest buyout of all time, behind a $39 billion buyout of Equity Office Properties in 2007.

Only $5.5 billion of the HCA buyout was equity. The rest was borrowed money plus the value of the company's existing debt. The deal was done, analysts said, because of cheap borrowing costs, making debt easier to handle, and a feeling that for-profit health companies were being undervalued on Wall Street.

In its IPO filing, HCA said the company's stronger balance sheet and greater efficiency helped make now a good time to come back to the stock market. For 2009, the company had a profit of $1 billion on revenue of $30 billion, both numbers up more than 15% since the company went private. Analysts said the prospect of health system reform creating a new class of insured patients for HCA also was a possible factor.

HCA acknowledged that its high debt represents a risk. The company, in part thanks to the buyout, reported $26.9 billion in debt, $20 billion of it due to be paid in the next 10 years unless the company can refinance it. The company said its write-offs for unpaid accounts, uninsured discounts and charity care had grow by about $1 billion per year from 2007 to 2009, with last year's total at $8.4 billion. The company also said that the buyout investors still will hold more than 50% of company stock, meaning HCA will not have to follow corporate governance rules on transparency and compensation that apply to more widely held companies on the NYSE.

This would be the third time HCA has gone public. The company, founded in 1968, first went public in 1969. It took itself private in 1989, then went public again in 1992. It remained a public company until the 2006 buyout. HCA owns 162 hospitals and 106 surgery centers in 20 states and England.

Analysts questioned whether the IPO would be filed, in light of an SEC investigation into possible fraudulent billing in HCA's British operations.

The IPO filing did not address the investigation. However, HCA has previously denied any wrongdoing and has said it is cooperating with the SEC, which has no comment on pending investigations.

The details of HCA's IPO are online (link).