Universal Health buys rival psych-unit operator

In a $3.1 billion deal, Universal Health Services Inc., which is based in King of Prussia, is buying rival Psychiatric Solutions Inc., creating what it says is the nation's largest network of freestanding inpatient psychiatric facilities.

"We believe this is a truly transformative transaction," Steve Filton, senior vice president and chief financial officer for UHS, said during a conference call with analysts Monday.

The hospital management company had boosted its offer after private-equity firm Bain Capital L.L.C. mounted an eleventh-hour challenge during Psychiatric Solutions' board meeting Sunday, Bloomberg News reported.

UHS owns or operates 25 acute-care hospitals and 102 behavioral-health facilities in 32 states. PSI has 94 psychiatric facilities and is based in Franklin, Tenn. The combined company will have 221 health-care facilities in 37 states and territories. Their total revenue in 2009 was $7 billion.

The deal is expected to close in the fourth quarter.

UHS has been taking "substantial steps" to increase its behavioral-health business over several years, Filton said. "The acquisition of PSI is a real game-changing event for us in this space."

He described Psychiatric Solutions as an "extremely favorable strategic fit" for UHS and said the two companies competed directly in few markets. "If there would ever be a transaction of this size that we would be comfortable with, this is it," he said.

Joshua Nemzoff, a mergers and acquisitions specialist based in New Hope, called the purchase a "large deal, to say the least." He said he thought it unlikely that the deal would lead to significant closings of hospitals or job losses.

The mental-health parity bill passed by Congress last year and the health-care overhaul likely will strengthen the mental-health business, Filton said.

Alan Zuckerman, president of Health Strategies & Solutions in Philadelphia, said this was the beginning of a wave of mergers touched off by the economy and health-care overhaul, which is also expected to increase the need for efficiency. "It's all part of the consolidation that's going on in the industry," he said. "More to come. Lots more to come."

Alan B. Miller, chief executive officer and chairman of the board of UHS, said the company remained "fully committed to our acute-care business."

Filton said the company expected to realize $35 million to $45 million in cost savings from the deal. More than a third of that would come from savings in compensation for senior managers.

Miller chimed in that UHS wanted to keep some Psychiatric Solutions managers. "There are a number of very talented people, and we look forward to working with them," he said.

Psychiatric Solutions said in a regulatory filing earlier this month that it was cooperating with a Department of Justice request for information on compensation for senior executives.

Locally, Psychiatric Solutions owns Brooke Glen Behavioral Hospital in Fort Washington, Friends Hospital in Philadelphia, and Summit Oaks Hospital in Summit, N.J. Universal Health Services owns the following behavioral-health facilities: Fairmount Behavioral Health System, Philadelphia; Foundations Behavioral Health, Doylestown; Horsham Clinic, Ambler; Keystone Center, Wallingford; Pennsylvania Clinical Schools, Coatesville; and Hampton Behavioral Health Center, Westampton, N.J.

UHS shares rose nearly 8 percent, or $3.10, to close at $42.14. PSI shares fell 24 cents to $32.39.

Universal Health Services

Headquarters:

King of Prussia

Employees: 28,000

2009 revenue: $5.2 billion

Acute-care facilities: 25

Acute-care beds: 5,484

Behavioral facilities: 102

Behavioral beds: 7,921

Psychiatric Solutions

Headquarters:

Franklin, Tenn.

Employees: 16,000

2009 Revenue: $1.8 billion

Acute-care facilities:

None

Behavioral facilities: 94

Behavioral beds: 11,290

SOURCE: CompaniesEndText