Attached files
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| 8-K - FORM 8-K - TENET HEALTHCARE CORP | d558574d8k.htm |
| EX-99.3 - EX-99.3 - TENET HEALTHCARE CORP | d558574dex993.htm |
| EX-99.1 - EX-99.1 - TENET HEALTHCARE CORP | d558574dex991.htm |
 Acquisition of
Vanguard Health Systems
A New Company for a New Healthcare Environment
June 24, 2013
Exhibit 99.2 |
 Disclosures / Forward-Looking Statements
1
Our presentation includes certain financial measures such as Adjusted EBITDA, which
are not calculated in accordance with generally accepted accounting
principles (GAAP). Reconciliation between non-GAAP measures and related GAAP
measures can be found at the end of this presentation.
Non-GAAP Information
Certain statements in our presentation are “forward-looking statements” under Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are based on current expectations. However, actual results may
differ materially from expectations due to the risks, uncertainties and other factors that affect our business and
Vanguard Health Systems' (“Vanguard”) business. These factors include, among others, the
occurrence of any event, change or other circumstances that could give rise to the termination
of the merger agreement; the failure to satisfy conditions to completion of the merger,
including receipt of regulatory approvals; changes in the business or operating prospects of Vanguard; changes in
health care and other laws and regulations; economic conditions; adverse litigation or regulatory
developments; competition; our success in implementing our business development plans and
integrating newly acquired assets; our ability to hire and retain health care professionals;
our ability to meet our capital needs, including our ability to manage our indebtedness; and our ability to
grow our Conifer Health Solutions business segment (“Conifer”). We and Vanguard provide
additional information about these and other factors in the reports filed with the Securities
and Exchange Commission, including, but not limited to, those described in “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our and
Vanguard’s annual reports on Form 10-K for the year ended December 31, 2012 and June 30,
2012, respectively. We disclaim any obligation to update any forward-looking statement in
this presentation, whether as a result of changes in underlying factors, new information,
future events or otherwise. |
 Acquisition Highlights
•
Tenet
acquiring
Vanguard
for
$21
cash
per
share,
or
an
aggregate
of
$4.3
billion
(a)
•
Unanimously approved by both Boards of Directors
•
Accretive to Tenet’s earnings in year one
•
$100-200
million
in
annual
synergies
expected
–
revenue
cycle
management
efficiency
and
improvement,
overhead
reduction,
and
supply
chain
management
and
other
operating improvement
•
Ed Kangas, Non-Executive Chairman of Tenet, to continue as Non-Executive
Chairman; Charlie Martin, Vanguard CEO, to join Tenet board
•
Trevor Fetter to continue as President and CEO; Keith Pitts, Vice Chairman of
Vanguard, to join Tenet as Vice Chairman
•
Tenet intends to complete existing share repurchase program in 2013
•
Leverage ratio projected to return to 4.75x-5.0x by year end 2014
•
Expected to close by year end 2013
2
(a)
Includes $2.5 billion in Vanguard debt |
 3
Well-Positioned for the New Healthcare
Environment
•
79 hospitals and 157 outpatient centers
•
Applies proven cost management, quality improvement, care integration and
network development strategies across a broader platform
•
Enhances portfolio management opportunities
Increased
Scale
•
Expands
market
leader
position
–
#1
or
#2
position
in
19
important
markets
•
Adds geographic diversification with expansion into additional states
•
Adds
important
markets
in
Texas
–
San
Antonio
and
South
Texas
Enhanced
Geographic
Breadth
•
Physician alignment, recruitment and employment strategies applied across
broader network
•
Leverages Vanguard’s health plan experience developing successful clinical
integration and ACO models
Broader
Physician
Platform
•
Leverages Conifer Health Solutions across broader portfolio
•
Adding
Vanguard
health
plan
expertise
expands
Conifer
value-based
care
and
population health management capabilities
Integrated
Service
Offering
•
Combines two organizations with similar values, priorities and demonstrated
cultures of ethics and compliance
•
Tenet’s proven management capabilities augmented by Vanguard turnaround
expertise and experience in health plan operations
Complementary
Management
Teams |
 4
Successful track record
of generating growth by
acquisition and strategic
Vanguard
Tenet
Hard-wired culture
of ethics and
compliance
High quality clinical
operations
Industry-leading
quality and safety
programs
Complementary Operational Strengths and
Shared Values
Successful track record of
generating organic growth
Systematic approach to cost
management (Performance
Excellence Program)
Excellent centralized managed
care contracting and outpatient
development strategies
Highly technology-enabled
and scalable revenue
cycle operation
Innovative approaches to
cost management
Expertise in health plan
operations and innovative
payment models
Experienced in not-for-profit
partnerships and turn-
around management
partnerships |
 Established Positions in Key Markets
Greater Breadth Provides Opportunities for Revenue Growth
(a)
Excludes 2 Connecticut hospitals currently under LOI
5 |
 6
•
Complements established Tenet positions in El Paso,
Houston, Nacogdoches and Dallas
•
Both new markets demonstrate underlying population
growth
•
Vanguard showing strong organic growth in its own
operations/market share
•
San Antonio
•
#2 system in Texas' 3rd largest market
•
Opportunities for additional growth
•
Harlingen / Brownsville
•
Opportunities for further earnings improvement in
strong market
•
Pro forma revenue doubles from $1.5B to $3.0B
•
Vanguard’s health plan and ACE pilot program provide
platform for innovative contracting models
•
Positioned for significant upside from ACA
Current Tenet market
Current Vanguard market
Adds Important New Markets in Texas
(b)
Includes 3 freestanding OP facilities recently acquired by Tenet
(a)
Includes 2 Vanguard hospitals under development
San Antonio
7 Hospitals
(a)
13 OP Centers
(b)
Houston
3 Hospitals
15 OP Centers
El Paso
3 Hospitals
8 OP Centers
Nacogdoches
1 Hospital
2 OP Centers
Harlingen/
Brownsville
2 Hospitals
1 OP Center
Dallas
3 Hospitals
8 OP Centers |
 Medicare and Medicaid Covered Lives
(Projected Growth: 2013-2017)
San Antonio
Chicago
Massachusetts
Nacogdoches
South Texas
Detroit
Philly Children’s Market
Spalding
San Ramon
San Luis Obispo
Saint Louis
Rock Hill
Philadelphia
Downtown
Houston
Palm Beach County
Orange County
NW Houston
North Central CA
Phoenix
Miami
Memphis
Hilton
Head
Hickory
El Paso County
East Cooper
Dallas
Coachella Valley
Central Carolina
Birmingham
Atlanta
U.S. Average
Connecticut
U.S. Average
(a)
Projections assume all Tenet’s states implement Medicaid expansion; does not
include Texas expansion for Vanguard Source: MPACT 5.0, PRISM 4.1, McKinsey
Health Reform Team. Projected
Expansion
of
Insurance
Coverage
with
Healthcare
Reform
(a)
Vanguard
Tenet
7
Geographic Presence Creates Substantial
Benefit from Affordable Care Act
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80% |
 Source:Vanguard
and Tenet
company financials.
(a) For Vanguard, acute care only.
(b) Represents markets with less than 5% of revenue
8
Greater Geographic Diversification Balances Revenue Sources
Texas
17%
California
24%
Florida
19%
Other
(b)
13%
Texas
21%
California
15%
Florida
12%
Michigan
13%
Illinois
5%
Massachusetts
5%
Other
(b)
23%
Pennsylvania
6%
Georgia
7%
Pennsylvania
9%
Other
Markets
(n=10)
41%
Markets
with #1 or #2
Share (n=14)
59%
Other
Markets
(n=11)
30%
Markets
with #1 or
#2 Share
(n=19)
70%
S. Carolina
6%
Missouri
5%
Established Positions in Key Markets
% of Revenues
by State
(CY 2012)
% of Revenues
from #1 or 2
Market Share
(CY 2012)
Tenet
Standalone
Tenet
Post-Acquisition
(a) |
 9
(a) Vanguard revenue payor mix is based on Q3YTD actual payor mix
(b) Managed care includes Managed Medicare and Managed Medicaid
Source: Vanguard and Tenet company financial projections.
Broader Service Offering and Well-Balanced Payor Mix
Revenue Breakdown
Inpatient
Outpatient
Services
and other
Health plans
Post-
Acquisition
Tenet
Standalone
Managed
care
(b)
Medicare
Medicaid
Other
Post-
Acquisition
Tenet
Standalone
Revenues By Service, CY 2013
Revenues By Payor
(a)
, CY 2013
10%
31%
59%
56%
32%
8%
4%
11%
22%
59%
8%
10%
24%
58%
8% |
 28%
increase
in
Conifer
revenues
(incremental
$250
million
added
by
Vanguard
annually)
10
(a)
2013 est. pro-forma for integration of Catholic Health Initiatives
Builds Conifer’s Position in Fast-Growing
Healthcare Business Services Industry
Conifer
Current
(a)
Conifer Post-
Acquisition
% Increase
Net Client Revenue
Processed Annually
$21B
$26B
24%
Patient Accounts
Processed Annually
10M
12M
20%
Revenues
$890M
$1,140M
28%
Health plans operations augment Conifer’s value-based care
capabilities |
 11
Source:
Company website, Company financials, Vanguard management presentation
(a) Excludes member lives lost from Phoenix Health Plan, with exception of
Maricopa (b) To be launched in 2014
Creates Greater Scale and New Opportunities
•
Vanguard health plan skills
and capabilities diversify
Tenet’s service offerings
•
Assists in successful
development of clinical
integration and ACO
models
•
Capabilities can be
leveraged in managing next
generation payment models
and population health
Enhanced Health Plan Expertise
Vanguard
Tenet
ACO
Health Plan
Michigan
~18,000 lives
Texas
~24,000 lives
~18,000 lives
Florida
~13,000 lives
Georgia
~9,000 lives
(b)
Massachusetts
~32,000 lives
Illinois
~52,200 lives
California
Arizona
~101,000 lives
(a)
CIO |
 12
Tenet
Vanguard
(a)
($M)
($M)
Both Management Teams Bring Strong Growth
Track Records to Combination
396
525
598
636
714
955
1,036
1,126
1,203
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
$250
$500
$750
$1,000
$1,250
2004
2005
2006
2007
2008
2009
2010
2011
2012
Adjusted EBITDA
Adjusted EBITDA Margin
174
245
255
245
264
299
323
420
573
5.0%
7.0%
9.0%
11.0%
13.0%
$0
$100
$200
$300
$400
$500
$600
2004
2005
2006
2007
2008
2009
2010
2011
2012
EBITDA
EBITDA Margin
(a)
Source: Vanguard Management.
Figures shown on fiscal year basis.
Vanguard EBITDA does not reflect the effect of stock based compensation.
|
 Synergies are Significant and Achievable
Clearly Identified Through Cost Savings, Benefits of Scale and
Operating Opportunities
13
•
Revenue Cycle
Management Efficiency
and Improvement
Synergy Area
Estimated
Timing
•
Supply Chain Management
and Other Operational
Improvement
•
Overhead Reduction
12-24 months
6-18 months
12-24 months
50% Projected to be Achieved Within the First Year Post-Closing
Projected
Synergies
$100 -
200
million |
 Analysis Shows Clear Synergy Opportunities
14
Source: Vanguard financials, Tenet financials
Total operating
expense per
adj. discharge
($, acuity-
adjusted)
Cost metric
$6,923
$7,950
-13%
Tenet
comparable
facilities
(FY2012)
Example
Vanguard
market
(Q3 FY2013
YTD)
Opportunities exist
within Vanguard’s acute
care portfolio to capture
synergies through cost
optimization
A large Vanguard
market shows
potential for cost
reduction in operating
expenses when
compared to a set of
Tenet comparable
facilities |
 •
Modest multiple compared to historical industry transactions
•
NPV
of
expected
synergies
of
approximately
$1.4
billion
•
Committed financing in place from Bank of America Merrill Lynch
•
Tenet to refinance Vanguard debt at attractive rates
•
Pro forma debt/EBITDA leverage ratios to decrease within first year
after closing
•
Projected at 4.75x-5.0x by year-end 2014
•
Longer term post-acquisition leverage target of 4.25x-4.75x
•
Tenet’s existing share repurchase program to continue
uninterrupted
•
Existing NOLs of approximately $1.5 billion to be utilized across the
earnings of the combined organization
15
Tenet Retains Significant Financial Flexibility |
 Next
Steps and Road to Completion •
Definitive
agreement
–
no
Tenet
shareholder
vote;
voting
commitments received from Vanguard controlling shareholders
•
Regulatory approvals expected
•
Hart-Scott-Rodino
•
State and local approvals as required
•
Tenet intends to complete existing share repurchase program in
2013
•
Integration team assembled and ready to be deployed immediately
upon closing
•
Closing expected by year end 2013
16 |
 17
Transaction Enhances Shareholder Value
Substantial
Synergies
Increases
Scale
Broader
Service
Offering
Shareholder
Value
Expanded
Partnership
Opportunities
Maintains
Financial
Flexibility
Strong and
Complementary
Management
Teams
Enhances
Geographic
Breadth
Upside
from
Affordable
Care Act |
 Reconciliation of EBITDA
Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income (loss)
attributable to Tenet Healthcare Corporation common shareholders before (1)
the
cumulative
effect
of
changes
in
accounting
principle,
net
of
tax;
(2)
net
loss
(income)
attributable
to
noncontrolling
interests;
(3)
preferred
stock
dividends;
(4)
income (loss) from discontinued operations, net of tax; (5) income tax benefit
(expense); (6) investment earnings (loss); (7) gain (loss) from early extinguishment of
debt; (8) net gain (loss) on sales of investments; (9) interest expense; (10)
litigation and investigation benefit (costs), net of insurance recoveries; (11) hurricane
insurance recoveries, net of costs; (12) impairment and restructuring charges, and
acquisition-related costs; and (13) depreciation and amortization. The Company’s
Adjusted EBITDA may not be comparable to EBITDA reported by other companies.
The Company provides this information as a supplement to GAAP information to assist
itself and investors in understanding the impact of various items on its financial
statements, some of which are recurring or involve cash payments. The Company
uses this information in its analysis of the performance of its business excluding
items
that
it
does
not
consider
as
relevant
in
the
performance
of
its
hospitals
in
continuing
operations.
In
addition,
from
time
to
time
we
use
this
measure
to
define
certain performance targets under our compensation programs. Adjusted EBITDA is not
a measure of liquidity, but is a measure of operating performance that
management uses in its business as an alternative to net income (loss) attributable
to Tenet Healthcare Corporation common shareholders. Because Adjusted EBITDA
excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly,
investors are encouraged to use GAAP measures when evaluating the Company’s
financial performance. The reconciliation of net income (loss) attributable to Tenet
Healthcare Corporation common shareholders, the most comparable GAAP term, to
Adjusted EBITDA, is set forth below. 18
For a presentation of Vanguard’s reconciliation of Adjusted EBITDA to
financial measures calculated in accordance with GAAP, see Exhibits 99.1 and 99.2 to
Vanguard’s
Reports
on
Form
8-K
filed
with
the
SEC
on
August
23,
2012,
August
25,
2011,
August
26,
2010,
September
1,
2009,
September
22,
2008,
September
18,
2007, September 19, 2006, September 12, 2005 and August 9, 2004.
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