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.
This program aired on November 9, 2010. The audio for this program is not available.