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Tenet to Buy Vanguard Health amid 'Obamacare' M&A Frenzy

Tickers in this article: AET DVA THC VHS WLP

NEW YORK (TheStreet) -- Tenet Healthcare is buying Vanguard Health Systems in a deal that further consolidates the U.S. healthcare industry in the wake of the passage of the Affordable Care Act (ACA), which was mostly upheld by the U.S. Supreme Court about a year ago.

Tenet's proposed acquisition of Vanguard Health Solutions values the hospital network at $21 a share, or roughly $1.8 billion, and comes at a 70% premium to the company's Friday closing share price. Monday's deal values Vanguard at $4.3 billion when including Tenet's assumption of $2.5 billion in the company's debt.

The deal indicates that the healthcare industry is consolidating on multiple fronts in the wake of the ACA, commonly referred to as 'Obamacare.'

Tenet's acquisition of Vanguard focuses on the sprawling U.S. hospital and healthcare practice industry, which is quietly in the throes of consolidation, according to industry sources.

The company will expand its total base of hospitals to 79 and its number of outpatient facilities to 157, the company said in a statement. Vanguard Health Solutions will also further diversify Tenet into states such as Texas and increase the company's overall footprint to 16 states.

Tenet highlights states such as Texas should see a fast rising base of customers in the wake of 'Obamacare,' in a Monday press release. Analysts have noted the Act may increase the number of users of hospitals and outpatient facilities, while also reducing companies' bad debt expense, given an expected increase in overall healthcare coverage nationwide. States previously lagging in coverage may see the biggest change.

Vanguard Health Systems shares were rising over 65% in pre-market Monday trading to $20.55, just below Tenet's offer price. Tenet shares were rising nearly 6% to $44.35 a share, indicating investor comfort with the debt and premium attached to its acquisition.

Private equity giant Blackstone Group is Vanguard Health Systems largest shareholder, with a 37.9% stake in the company's outstanding shares, according to a May 31 Securities and Exchange Commission filing. Vanguard shares have struggled after a July 2011 initial public offering, however, Monday's deal values the company's shares abut 17% above its IPO price.

"This acquisition will take Tenet into new geographic markets, expand the breadth of our service offerings, diversify our earnings sources and increase the benefits we expect to realize under healthcare reform," Trevor Fetter, Tenet chief executive, said in a statement.

In the past year, Tenet's shares have gained over 100%, as investors brace for healthcare industry consolidation and the earnings impact of 'Obamacare.'

Already a lot has happened in the industry, as major players across the healthcare spectrum position for dramatic change in coming years.

Leading up to the passage of the act, pharmacy benefit managers such as Express Scripts , CVS Caremark and Walgreens have used mergers to expand their pharmacy and benefit networks in anticipation of changes to the cost structure of prescription drug plans.

Healthcare provider Cigna even bought HealthSpring in a push into the pharmacy benefits space, while other players have sought to bring prescription drug benefit plans in house, challenging the revenue of consolidators such as Medco Health Solutions. Medco was acquired by Express Scripts in one of the industry's largest-ever mergers.

Healthcare providers have also been hard at work trying to position for a rapid change to Medicare and Medicaid as 'Obamacare' kicks in over the next 12-to-18 months. At around the act's passage and affirmation by the Supreme Court, WellPoint and Amerigroup merged, followed shortly thereafter by a merger between Aetna and Coventry Healthcare .

There are likely more deals to come.