Community Health Systems Will Now Lack A Quorum As It Completes Quorum Health Spinoff on April 29

Community Health Systems’ (CYH) board of directors gave the formal go ahead to the spinoff of its regional hospital network, Quorum Health (QHC). The spinoff will take place on April 29th and CYH shareholders as of April 22nd should receive one share of Quorum for every 4 CYH shares owned. The new company will trade under the ticker ‘QHC’. The stocks have already begun trading on a ‘When Issued’ basis, but as usual, the volume is quite light.

The spinoff was initially planned for the first quarter of 2016, but the timing got pushed back due to ‘market conditions’. Some speculated that the real reason was due to issues that arose in the healthcare and hospital market, but it only cost an extra month or so.

Raymond James’ John Ransom recently sent shares of Community Health sinking after he downgraded the name. Mr. Ransom believes the spinoff is a negative for the company and that while it might make strategic sense, it doesn’t make financial sense. Ultimately, the transaction will raise costs and lower earnings for both companies. Additionally, leverage will increase potentially creating problems down the line. Of course, Oppenheimer’s Michael Wiederhorn disagrees and thinks the spinoff is a good move. Here is an interesting discussion that brings up some of the pressing issues in the names such as changing reimbursement rates and debt levels.

Quorum’s market cap is expected to be rather low compared to its parent so it’s worth keeping an eye on this situation to see if there is a heavy amount of indiscriminate selling.

Disclosure: Author holds no shares in any company mentioned.