Caritas Deal: Top 3 Theories On What Cerberus Is Really After

After polling analysts and industry watchers, here are Martha's top three theories:

1. Under Pressure
Cerberus (named after a three-headed dog that guards the gates to the underworld) has been under pressure to make acquisitions to circulate capital in a tight economic market, and this was a fairly reasonable deal.

2. Health Reform Law
The new health care law — which was a little bit in limbo given the recent elections — is expected to lead to a lot of consolidation in the hospital industry. So if Caritas can grow and boost its profit margin 2 or 3 percent, it can negotiate better reimbursement rates with insurers. Maybe it will be attractive to one of the larger for-profit hospital chains that is consolidating.

3. A Not-Too-Risky Deal

Cerberus bought low and the $895 million deal that we’ve been reporting is not all cash up front. The actual purchase price is about $496 million; more than half of that is the pension liability that Cerberus will pay off over many years if it holds on to Caritas. The big influx of cash, the remaining $400, is not a lump sum for service, but it’s money that Cerberus was committed to spend out of what it expects will be increasing revenue at Caritas.