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HCA initial public offering reaches $3.8 billion

Proceeds will help pay down the for-profit hospital chain's debt, which is far more than what it got on the stock market.

By Bob Cook — Posted March 10, 2011

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HCA, the nation's largest for-profit hospital chain, set a U.S. record for the largest initial public offering made by a company that had previously taken itself off the stock market.

Even though the proceeds from the sale represent only a small fraction of HCA's debt load, the company received the share price it hoped for in the IPO and watched its stock rise on its first day of trading in an otherwise down market.

The company said it sold 126.2 million shares of stock for $30 per share before its first day of trading, March 10, on the New York Stock Exchange. About 87.7 million shares represented new stock, while an additional 38.5 million represented stock sold by existing HCA owners. That put the value of the IPO at nearly $3.8 billion.

HCA will receive $2.6 billion in proceeds from that IPO, representing the value of the new shares. Existing HCA owners will keep the proceeds from their sale.

The company, with 164 hospitals in the United States and England, had released a filing Feb. 22 that said it plans to issue about 142.6 million shares of stock at a top initial price of $30 per share, which would raise nearly $4.3 billion (link). That was the third revision in its IPO. In its original filing in 2010, HCA said it expected to raise $4.6 billion, but amended that to $2.5 billion in a December 2010 filing.

The share price met HCA's expectations from the Feb. 22 filing, though individual owners did not sell as many shares as originally expected.

Still, HCA beat an IPO record for private-equity-backed companies, set in February by pipeline company Kinder Morgan, whose offering was valued at $2.9 billion.

HCA has been held by private equity investors since 2006, when it was converted from a publicly traded to a private company during a leveraged buyout. At the time, the $33 billion deal was the largest of its kind in U.S. history.

The bulk of the 36.3 million shares sold by individuals came from those who backed the buyout. Among them were Bain Capital, Kohlberg Kravis & Roberts Co., Merrill Lynch, and HCA founder Thomas F. Frist Jr., MD, and his family members. After the IPO, they own about 70% of the outstanding 515 million shares, down from their current 96% ownership stake.

This is the third time HCA has gone public. The company was founded in 1968 and went public a year later. It took itself private again in 1988, then re-emerged as a public company in 1992 before again going private in 2006.

HCA plans to use its $2.6 billion in corporate IPO proceeds to pay down the company's debt, among other priorities. However, that money will make only a dent. In financial filings, HCA said it has $27.6 billion in long-term debt. The company had $30.7 billion in revenue in 2010, up from $30.1 billion in 2009. Net income increased 14.5% to $1.2 billion. Financial information is available online (link).

The ratings service Standard & Poor's cautioned investors about HCA's high debt load. "Still, financial sponsors of the largest U.S. hospital company, who have received dividends totaling over $4 billion since its $33 billion buyout in 2006, will continue to dictate a financial risk policy that we believe will be highly leveraged," according to an S&P report released March 9.

The stock opened trading at $31.02, $1.20 above its IPO price, and closed down slightly at $31.02. However, HCA outperformed the Dow Jones Industrial Average, which fell 1.9%, down 228.48 to 11,984.61.

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