Questions from text book
Mergers, Acquistions and Other Restructuring Activities, 7th Edition
ISBN-13: 9780123854872
Author(s): DePamphilis, Donald

Case Study 14.2 HCA Goes Public.... Again

1. The private equity investors in HCA decided in 2010 to declare dividends totaling $4.3 billion financed with HCA borrowings. Presumably, if the additional borrowing had not taken place, the firms' leverage would have been lower prior to the IPO in March 2011 and the potential IPO share price could have been higher. If you were a private equity fund manager, would you have decided to pay a dividend or to have allowed HCA's leverage to decline further in anticipation of the IPO?

2. Based on what you know about HCA and the outlook for teh U.S. healthcare industry, in what sense do you believe HCA was on attractive LBO candiate and in what sense was it not? Be specific.

3. Critics of LBOs often argue tha such transactions contribute little to society and serve only to enrich the financial sponsor. Do you agree or disagree with this treatment? Supply yopur conclusion.

4. HCA had a negative shareholders' equity at the end of 2010 of $(11.93)billion, just prior to the IPO, making the firm technically insolvent. Nonetheless, the investor response to the IPO was highly enthusiastic. Why do you believe this was the case?

5. Assume you are a private equity investor responsible for designing the optimal capital structure for a firm you intend to acquire through a leveraged buyout. What factors would you take into consideration in constructing the optimal capital structure? Be specific.