Published in Health Care

Failed CHS deal becomes a blessing in disguise for Metro

BY Sunday, October 02, 2016 01:40pm

Metro Health’s probable link with the University of Michigan Health System comes a little more than a year after a joint venture collapsed with one of the largest operators of hospitals in America.

Looking back, Metro Health President and CEO Mike Faas is downright thankful the deal fell apart.

That’s because the for-profit Franklin, Tenn.-based Community Health Systems Inc. — which would have owned 80 percent of Metro if the deal had gone through — has been struggling and says it is now “exploring a variety of options with financial sponsors, as well as other potential alternatives.” Those alternatives include a sale of the entire business, according to a Bloomberg News report.

If Metro Health had gone ahead last year with the joint venture, the system today would have faced uncertainty about the future, rather than the stability and strength it sought by aligning with a larger partner.

“Thank God we weren’t part of them when this all happened,” Faas said. “We’d either be sold again, or I don’t know what we’d be.”

As he talked about the new deal Metro Health struck to become part of the U-M Health System, Faas opened up for the first time about what derailed the CHS joint venture. Metro Health directors’ decision in early August 2015 to walk away from the CHS deal stemmed from “lots of little things that added up to a sense of unease,” he said, not any one “major snafu.” 

As Metro Health sought to work out a final agreement, CHS repeatedly sought to insert new elements into the deal that had not been previously agreed upon, he said. The last-minute “that’s not what we meant, we want to change one more thing” caused Metro Health directors to pause and rethink their plans.

“It was all about relationships we saw that were going to be forced to be changed, with either our patients, our employees, our physicians or others,” he said. “It got to a level that we thought, ‘No. This doesn’t seem to fit West Michigan.’” 

Weeks after announcing the decision to withdraw from the joint venture, Faas called his counterparts at U-M Health System, which earlier had submitted a proposal to acquire a majority stake in Metro and remained interested in coming to Grand Rapids. The subsequent talks with U-M Health System culminated with the signing of a letter of intent in June and definitive agreement between the organizations two weeks ago.

Talks with U-M Health System, in some way, were steered by the failed joint venture proposal with CHS.

“That was an expensive lesson, but it was the right lesson that made us much smarter this time in what we’re very close to accomplishing,” Faas said. 

The biggest lesson out of the CHS experience was one often heard from professionals who work in the M&A field: Any deal, no matter the financial terms, has to first take into account the culture and compatibility of the two organizations.

“Even a partner that can bring a brand and wealth, or capital, may not be the best partner,” Faas said. “You have to look for a partner that culturally understands who you are and from a mission and vision is tightly aligned with who you already are.” 

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