Natividad Medical Center wants to marry Salinas Valley Memorial Hospital, and it wants the world – or at least the World Wide Web – to know it.
The county hospital submitted its proposal to merge with SVMH last week, then publicly declared its love. Natividad posted the proposal on its website March 8, the day after SVMH’s deadline.
A lot less transparent: the rest of the SVMH’s suitors, which remain hidden from public view in the clutches of Cain Brothers, the investment banking consultants hired to analyze the proposals.
Salinas Valley Memorial Healthcare System spokeswoman Adrienne Laurent said hospital officials would release news about the interested parties on March 14, past the Weekly’s deadline. Cain Brothers will give the hospital board a report on the proposals March 22, she says. At that meeting, the board will likely narrow the field – the hospital equivalent of handing out date cards, and seeing if there’s a potential long-term match.
SVMH is keeping its options open. It may choose to merge with another hospital. Or the board may choose to sell the hospital off entirely.
According to the Cain Brothers contract, available on the SVMHS website, the consulting firm stands to make a lot of money from a merger – but even more from a sale. The contract essentially pimps out SVMH. “If a transaction is consummated,” it reads (and for the purposes of this contract a “transaction” means a merger, acquisition or anything in between), “then SVMHS shall pay Cain Brothers in cash, immediately upon such consummation, a transaction fee equal to 1.1 percent of the Aggregate Transaction Value, subject to a minimum fee of $900,000 and net of any previously paid fees.”
Those previously paid fees include a non-refundable retainer of $75,000, a $100,000 letter-of-intent fee, a $100,000 definitive agreement fee and a $250,000 opinion fee.
In other words, Cain Brothers crafted an iron-clad pre-nup.
County Supervisor Jane Parker notes it would take a sale price of more than $90 million to meet the Cain Brothers’ minimum. “They’ve built in some pretty good financial terms for themselves,” she says. “They do better if there’s a lot of money changing hands, but to do better than $90 million? They’ve made sure they get compensated.”
Natividad, however, is already scripting its marriage vows. “The proposed transaction is for the creation of a new independent Public Hospital Authority that will consolidate into a single Health System… an asset merger of the two public hospitals, not an outright purchase,” the online proposal reads. “This local affiliation will honor the legacies and incorporate the strengths of both SVMH and NMC.”
Natividad’s proposal estimates the new hospital system would have more than $650 million in total assets, with $83 million in cash, less than $183 million in liabilities and a net worth of more than $467 million.
“There are really intriguing and compelling reasons to consider this local affiliation option,” Parker says. “Decision making will remain local, and at the same time we can realize administrative cost savings. By putting Natividad and Salinas Valley Memorial Hospital together, many complimentary things can happen.”
But will SVMH accept Nativdad’s rose? That remains to be seen.