CHICAGO – The merger of two Twin Cities area not-for-profit hospital systems -- Fairview Health Services and HealthEast – is expected to close June 1.
The board of directors at each system approved the union on Tuesday. The proposed merger was announced earlier this year and the Federal Trade Commission did not attempt to block it.
“Bringing Fairview and HealthEast together gives us the opportunity to create a world-class health system committed to serving our communities and the region,” Fairview’s chief executive officer James Hereford said in a statement.
Hereford will lead the combined system while HealthEast CEO Kathryn Correia will serve as chief administrative officer.
“As part of Fairview we will be able to increase the value we provide to our employees, physicians, patients and their families,” Correia said.
Minneapolis-based Fairview is the stronger and larger of the two and the merger has been portrayed as a rescue of the weaker St. Paul-based HealthEast, which has struggled to improve profitability.
Fairview operates the University of Minnesota Medical Center and six community hospitals with revenue of about $4 billion in fiscal 2015. HealthEast operates three acute care hospitals. Its facilities generated total revenues of $974 million in fiscal 2015.
Combined, they will hold about 28% of the 12-county region’s market share, according to a May 8 investor presentation posted on the Municipal Securities Rulemaking Board’s EMMA website.
Fairview carries ratings in the single-A category on roughly $860 million of debt. Fitch Ratings dropped HealthEast’s rated bonds to junk last year due to a drag on its profitability and failure to improve its weak liquidity. HealthEast maintains a BBB-minus rating from S&P Global Ratings.
HealthEast had $173.8 million in unrestricted cash and investments at fiscal year-end 2015 Aug. 31, which translated in to 69 days cash on hand, and cash to debt of 50.7%. The system’s profitability has rebounded but is still falling short of expectation, Fitch said in a report last year. The system has a total of $333 million of debt.
In affirming Fairview’s A-plus rating last year, S&P said Fairview benefits from a “stable market share and increasing utilization in key service areas, and healthy financial profile.”
Moody’s Investors Service rates Fairview A2. It withdrew HealthEast’s junk rating several years ago. Fairview's rating reflects its favorable market position in the Twin Cities, strong financial management, leading to consistent growth of absolute cash flow and unrestricted cash, continued improvement in balance sheet metrics, and steady financial performance, Moody’s said.
