Midweek wrap: Walgreens sells off $1.1B Cencora shares, R1 RCM goes private for $8.9B, Steward’s unwinding with 2 hospital closures, 1,200+ laid off, $30M state funding, bids due for physician group, CEO Senate hearing

Retrenching is the theme this (crazy) week.

Walgreens sells another 2% of Cencora shares, raising $1.1 billion of much-needed cash. Walgreens reduced its ownership share of the drug distributor formerly known as Amerisource Bergen to 10% by selling the remainder of their unencumbered shares, approximately 2% of the common stock. Known as a Rule 144 sale of restricted or control stock, the proceeds as of 1 August are $818 million followed by a concurrent share repurchase by Cencora of $250 million. This is the third sale this year: in May Walgreens sold 1% for $400 million and in February 2% for $990 million. All these sales were to fund operations and pay down debt. Despite the further reduction, Ornella Barra, COO International of Walgreens Boots Alliance, will continue on Cencora’s board. The partnership agreement remains in place. Release, Healthcare Dive, Reuters

Revenue cycle management company R1 RCM finally found investors to take it private.  TowerBrook Capital Partners and Clayton, Dubilier and Rice are the winners, acquiring R1 for $8.9 billion. They will purchase outstanding shares at $14.30 per share in an all-cash deal expected to close by the end of 2024. Private equity investor TowerBrook already owns 36% of the company. This shuts out rival New Mountain Capital as their 23 February bid was offered at a lower $13.75 per share. At that time, New Mountain owned 32%; that bid valued the company at nearly $6 billion. The purchase will be financed with a combination of committed debt financing and equity from investment funds affiliated with TowerBrook and CD&R. Large shareholders Ascension Health Alliance (also R1’s major customer) and Coliseum Capital Management were not mentioned in the acquisition release.

In March, a special committee was formed by their board to evaluate strategic alternatives, code for ‘we believe it’s undervalued’. The company is currently traded on Nasdaq and closed today at $13.96. R1 closed 2023 profitably with net income of $3.3 million, flipping a $63 million 2022 loss, on a revenue increase of nearly 25% to $2.3 billion. Q1 and Q2 2024 are a more mixed picture. Q1 had revenue of $603.9 million, up 11% year-over-year, but with a net loss of $35.1 million caused in part by $10 million in losses created by the Change Healthcare ransomware attack. Q2 continued the trend, with revenues of $627.9 million up 12% versus prior year, but a widening net loss of $7.6 million versus $1 million in the prior year. Q2 earnings release, Q1 earnings release, FierceHealthcare, Healthcare Dive

Seeking ‘strategic alternatives’ for current investors and going private seems to be the new fashion in the crowded healthcare business process outsourcing (BPO) and RCM sectors. Profitable but problematic companies such as Veradigm [TTA 28 May] and GeBBS [TTA 17 Apr] both up for sale or investment. To date, Veradigm has not gone public with any offers, but GeBBS was scheduled last month to have binding offers submitted by Carlyle Group, Hillhouse Investment, and CVC Capital Partners. ChrysCapital, India’s largest private equity firm, owns 80% of GeBBS. Economic Times (India)

The messy unwinding of Steward Health Care in the US Bankruptcy Court for the Southern District of Texas continues.

• The court approved the closure of two Massachusetts hospitals, Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, at the end of August. Neither hospital received qualifying bids in the sale process and both hospitals, serving primarily low-income patients, are among the worst performers in Steward’s anemic portfolio.
• Based on WARN notices filed with the state, over 1,200 people will lose their employment as well as communities losing services. 
• Yesterday, the Commonwealth of Massachusetts agreed to provide $30 million to keep the six remaining hospitals in the state running in two tranches: $11.3 million on 9 August and $18.7 million on 16 August. 
• Those hospitals are being handed over to NYC-based Apollo Global Management, a global alternative asset manager, to facilitate their sale from current landlords Medical Properties Trust and partner Macquarie Infrastructure Partners to new operators.
• Auctions pushed forward include the Arizona hospitals, with a new bid deadline of 12 August with a 19 August sale objection deadline and a 22 August sale hearing. Other hospitals in Ohio, Pennsylvania, Arkansas, and Louisiana have not been rescheduled after their canceled auctions.
• The Stewardship Health practice group now has a bid deadline of 6 August, with the sale objection deadline now 9 August and the sale hearing set for 13 August. Optum walked away from its deal back in April with the Chapter 11 filing and there is no word if they are bidding in bankruptcy.

Additional updates: the Senate investigation of Steward is going forward with a subpoena issued to CEO Ralph de la Torre. The public hearing of the HELP Committee and his appearance are scheduled for 12 September. FierceHealthcare No further developments in the US Attorney’s Boston office investigation of violations of the Foreign Corrupt Practices Act about Steward’s business dealings in Malta between 2018 and 2023. One wonders whether Dr. de la Torre will sail off on his 190-foot superyacht to one of the few places where extradition is difficult, such as Ecuador, Bolivia, Venezuela, or Iceland.

Healthcare Dive, Becker’s 31 July, Becker’s 6 August  Most recently in TTA 2 July, 18 July, 25 July