HCA Leveraged Buyout - Book Report/Review Example

The senior management of HCA is very much interested in Leverage Buyout (LBO) because of its dismal performances in recent years. Its revenues have greatly declined in the past three years because of the increased uncertainties arising from bad debts. This has been attributed to the fact that its income arises from inpatients arise from Medicaid (which accounts for 49%), Medicare (10%), and uninsured patients (5%). LBO will help in reorganizing the company’s structure and help it to make more profit. At the same time, an increased level of debts will enable the company to reduce its taxable income thus increasing its profitability.
Despite realizing progressive growth for many years, the performance of HCA eventually declined during recent years. Since it is a legal requirement that all healthcare facilities should offer medical care to patients irrespective of their ability to pay, HCA had to comply. However, this really jeopardized its income since most of its clients were either uninsured or had no paid insurance schemes. Its poor performance was evidenced when it missed consensus projection eight times. Its annual results in 2006 were really bad. With LBO successfully implemented, HCA will manage to overcome these challenges and improve its performance and restore the confidence of its shareholders.

3-Estimate the maximum price that the LBO firms can pay for HCA, using two approaches: one based on Exhibits 9 and 10; the other based on Exhibits 12 and 13

Exhibit 9

Year

2006

2007

2008

2009

2010

2011

Offer (million $)

694

1,107

1,482

1,626

1,799

1,790

Exhibit 11; Value per share

Offer per share

44.23

48.38

56.69

43.65

47.75

55.95

4-Compare your results in Q3 to the results in Exhibit 11 and reconcile them

The offer in exhibit 9 was fairer than that of exhibit 11.
5-Is the offer fair to shareholders? Explain!

Yes. The offer was fair to the shareholders because it would enable them to get the greatest projected returns for the value of their shares. After all, in its report, Merrill Lynch had recommended that the offer would be feasible and beneficial to the company’s shareholders.
6-What conflicts arise for shareholders because of the LBO process?

The shareholders have not come into an agreement on the exact value of the offer. The offer given should be viable to their investments.
7-As a member of the Special Committee, make your recommendation about the deal.

As a member of the Special Committee, I would like to highly recommend the LBO.