(Reuters) - U.S. hospital operator Tenet Healthcare Corp will buy smaller rival Vanguard Health Systems Inc for $4.3 billion including debt to expand into new geographies.
The offer of $21 per share represents a premium of 70 percent to Vanguard's Friday close. Vanguard shares were up 66 percent at $20.51 in thin trading before the bell.
The companies said the deal includes the assumption of $2.5 billion of debt.
Tenet said it expects the deal to add to earnings in the first year and estimates annual savings of $100 million to $200 million.
"This acquisition will take Tenet into new geographic markets, expand the breadth of our service offerings, diversify our earnings sources and increase the benefits we expect to realize under healthcare reform," Tenet CEO Trevor Fetter said in a statement on Monday.
Tenet has hospitals in California, Texas, several states in the U.S. Southeast and in Pennsylvania.
Vanguard owns and operates 28 acute care and specialty hospitals in the U.S. Midwest, South and Massachusetts.
U.S. hospital stocks have rallied this year as investors expect the companies to benefit from President Barack Obama's healthcare reform that will expand insurance coverage to more Americans. The reform has also spurred consolidation in the sector.
Tenet has secured fully committed financing from Bank of America Merrill Lynch.
Gibson Dunn & Crutcher was Tenet's legal counsel and Lazard, Bank of America Merrill Lynch, Barclays and Teneo Capital were financial and strategic advisers.
Vanguard was advised by J.P. Morgan. Skadden, Arps, Slate, Meagher & Flom was legal counsel.
The deal is expected to close by the end of the year.
(Reporting by Esha Dey in Bangalore; Editing by Roshni Menon)