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HCA Inc A Case Solution

Solution Id Length Case Author Case Publisher
755 582 Words (3 Pages) Richard S. Ruback Harvard Business School : 207076
This solution includes: A Word File A Word File

HCAs Board is facing considerable conflict of interest in terms of declaring the results of the second quarter and finalizing the buyout deal. If the company had announced its second quarter’s result before the transaction was finalized, then the company’s directors and managers would have made a loss out of the deal. Therefore, it is necessary for the company to reach a final transaction point to make money out of it.  Also, HCA board has to make their best effort to complete the deal with the private equity trio at a price range of $55 and $59. Also, the management was producing results in an optimistic manner to show a positive picture of the company’s future prospects to its private equity investors.  

Following questions are answered in this case study solution:

  1. Is HCAs Board facing potential internal conflicts of interest? How are they managing them? Is the process adopted by HCAs Board the most appropriate to maximize shareholder value in this transaction? What would you, as ML, advise this Board to do different?

  2. Could ML be engaged by the private equity trio to become lead underwriter of the $5.7 billion in new notes to be issued after the LBO? What are the potential conflicts of interest? What risks could ML be facing? What criteria should the private equity trio employ to select the most appropriate bank(s) for that role?

HCA Inc A Case Analysis

There were many loopholes in the process adopted by HCA as pointed out by Merrill Lynch. The best possible way out for HCA was the leveraged buyout transaction. Other methods such as repurchasing stocks, liquidation and spinning off would have deteriorated the stockholder value maximization.

As an advisor, it is recommended to the board that they should agree to the final offer of the investors at $50.75. HCA Board should not push the private equity trio to raise the final transaction price as this would minimize the time span between the deal and announcing the second quarter’s results. The company will not be getting any lucrative deal once the second quarter results are announced to the market.

Could ML be engaged by the private equity trio to become lead underwriter of the $5.7 billion in new notes to be issued after the LBO? What are the potential conflicts of interest? What risks could ML be facing? What criteria should the private equity trio employ to select the most appropriate bank(s) for that role?

Merrill Lynch has the required expertise and skills to conduct underwriting process in the health care industry. Due to these reasons, Merrill Lynch could be engaged by the private equity trio to become lead underwriter of the $5.7 billion in new notes to be issued after the LBO. Moreover, being a leading investment bank in the world, Merrill Lynch possesses all the necessary capabilities to take over the underwriting process to complete the deal. However, with Merrill Lynch taking care of the underwriting process, potential conflicts of interests can arise between Merrill Lynch and other private equity investors. For instance, being an advisor to HCA, Merrill Lynch can give recommendations through underwriting which will favor HCA. Also, HCA can offer side deal to Merrill Lynch to maximize the buyout deal with sharing profit incentive.

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