Advocate Aurora and Beaumont call off merger

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The largest health systems in Illinois, Wisconsin, and Michigan cancelled plans to pursue a merger, they announced Friday.

Illinois-based Advocate Aurora Health — created with the 2018 merger of Advocate which was Illinois largest system and Aurora which was Wisconsin’s largest — and Michigan-based Beaumont Health had signed non-binding letter of intent to join forces in June. Beaumont is the largest Michigan system based on net patient revenues and inpatient admissions.

Advocate Aurora's Aurora Health Center Pleasant Prairie in Wisconsin. The nonprofit abandoned merger talks with Beaumont Health.

The systems had hoped to close on the deal this year to create an enterprise with $17 billion in annual revenue.

It required state and federal regulatory approval and the approval of the systems’ boards.

While the systems did not give a reason for the cancellation the deal was facing intensifying opposition on multiple fronts among Michigan stakeholders.

“We continue to have a very high regard for Advocate Aurora Health,” said John Fox, Beaumont’s president and chief exuecutive officer.

“But, at this time, we want to focus on our local market priorities and the physicians, nurses and staff who provide compassionate, extraordinary care every day,” he said.

“We have great respect for Beaumont Health and we continue to believe scale will play a critical role in advancing quality, accelerating transformation and reducing cost in the healthcare world of tomorrow,” said Jim Skogsbergh, Advocate’s president and chief executive officer.

Some physicians, nurses and donors had urged the Beaumont board to reject the merger that they warned threatened the system’s independence. They questioned leadership’s intent and some critics said the system was putting earnings before care. The board in August announced it was delaying a vote.

A group of state and federal lawmakers also recently issued a statement in opposition to the merger over concerns that it would jeopardize “affordable, quality care” and that the time was not right given the pandemic.

Beaumont leaders had argued that the merger would not result in the closure of any facilities and the scale of the new organization would pave the way for local investments the system otherwise could not undertake on its own.

A merger would have created the 10th largest not-for-profit health system nationally. Advocate grew to become the largest system in Illinois through acquisitions and its leaders have said they continue to eye expansion to capitalize on the negotiating advantages and other benefits offered by a larger-scale organization.

Advocate Aurora operates 26 hospitals with about $12.8 billion in annual revenue. Beaumont operates eight hospitals with about $4.7 billion in revenue.

Negotiations began last year and continued into early 2020. They were paused by the COVID-19 pandemic as each focused on its response and managing the balance sheet impact. Both saw the union as an opportunity to expand and capitalize on the negotiating advantages and other benefits offered by a larger-scale organization.

As part of the letter of intent to explore the merger they agreed to an equal one-third governance structure with Aurora, Advocate, and Beaumont each accounting for five members of a 15-member board.

The systems were exploring an obligated group structure and were evaluating optimal credit structure alternatives and whether the refinancing of all or a portion of the existing debt could be considered beneficial to the combined organizations.

Beaumont carries ratings in the single-A category. Advocate Aurora is rated in the double-A category and has $1.5 billion of debt.

Ahead of an Advocate Aurora spring bond sale, Fitch Ratings and S&P Global Ratings affirmed Advocate’s AA rating and stable outlook. Moody’s affirmed its Aa3 rating. The system has $2.8 billion of debt.

Both systems have resumed elective procedures that were put on hold as hospitals prepared for an influx of COVID-19 cases and their volumes are recovering. Beaumont previously had been planning a merger with Ohio-based Summa Health, which was canceled in May.

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Not-for-profit healthcare M&A Advocate Health Care Illinois Illinois Finance Authority Michigan
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