CHICAGO — Loyola University Health System yesterday announced plans to merge with nearby suburban Gottlieb Memorial Hospital in a transaction that requires no money from Loyola and for Gottlieb to pay off all its outstanding debt prior to closing the deal.

The Illinois Health Facilities Planning Board needs to approve the acquisition.

The deal means that Loyola University Health System, the parent company of a 489-bed medical teaching center headquartered in the neighboring Chicago suburb of Maywood, would extend its reach into the more affluent population of Melrose Park, where Gottlieb has operated for 47 years.

Under the terms of the transaction, Gottlieb Memorial Hospital would create the Gottlieb Memorial Foundation with a gift of $75 million to go toward funding future health programs at the hospital. Gottlieb would provide an additional $15 million for future operating costs at the hospital.

In addition, Gottlieb, which currently carries roughly $61 million of outstanding tax-exempt revenue demand notes, would redeem the notes prior to the close of the merger. The hospital currently carries about $148 million in cash on its balance sheet.Pending state planning board approval, hospital officials are hoping for an early summer closing, said Loyola University Health System chief executive officer Paul Whelton at a press conference announcing the merger. “This is an arrangement that holds tremendous potential benefit.” .

Loyola officials said there were no plans for layoffs and both medical staffs and management will remain separate.

The system’s board of directors will assume governance of all Gottlieb entities, which include the 250-bed community hospital, the Gottlieb Health and Fitness Center, and the Marjorie G. Weinberg Cancer Care Center, all located on the Melrose Park campus and part of parent company Gottlieb Health Resources. The hospital will be renamed Loyola University Heath System at Gottlieb.

Analysts at Moody’s Investors Service, which rates Loyola Baa1, said they are waiting for more details before commenting on how the transaction might impact Loyola’s credit. The system has $250 million of outstanding debt.

Founded in 1961 by David Gottlieb, who is considered the inventor of the pinball machine, Gottlieb Memorial Hospital reported a net income in 2006 of $3 million on $143.3 million in revenue, according to reports. The Loyola system’s total revenues in 2006 increased by 1.3% to $703.6 million, according to its financial reports.

Hospital acquisitions in Illinois have recently come under increased scrutiny from the Federal Trade Commission, which in 2004 challenged Evanston Northwestern Healthcare’s acquisition of nearby Highland Park Hospital, saying it violated antitrust laws and gave the acquiring system unfair market advantage.

Under a 2007 unanimous opinion issued by the FTC — seven years after the merger — Evanston Northwestern was required to establish two separate and independent managed-care contract-negotiating teams for the two hospitals that made up ENH prior to the acquisition, and another for Highland Park Hospitals to inject additional competition in its pricing practices. Market participants, including rating agency analysts, said the FTC opinion could signal increased scrutiny of hospital mergers.


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