Public Companies Opting for Private Lives

Nov. 27, 2006 — -- It's been a tough few years for Jack Bovender, the chairman and CEO of HCA.

HCA, the nation's largest for-profit hospital chain, has struggled with sinking earnings and escalating expenses. Its third-quarter earnings fell 14 percent last month. Former Senate Majority Leader Bill Frist became the target of a federal inquiry after he sold his HCA shares shortly before the stock plunged 15 points last year. And Bovender's own multimillion-dollar pay package has come under fire, dividing the company's board of directors.

And all that drama has taken place on a public stage in front of thousands of shareholders, subject to the scrutiny of federal regulators and the media.

So when Bovender and the company's execs took the company private last Friday, not many Wall Street observers were surprised.

HCA, by accepting a $21.3 billion buyout from a consortium of private equity firms that included Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co., and Merrill Lynch Global Private Equity, abandoned the stock exchange and the exposure that comes with being a publicly traded company.

HCA has plenty of company. In just the last week, Equity Office Properties Trust, the nation's largest publicly traded office-building owner and manager, was snapped up for $19 billion by the Blackstone private equity group; Reader's Digest was bought for $1.6 billion by Ripplewood Holdings; and Vivendi was made an offer of $50 billion by KKR.

The trend is remarkable in its speed and size: In five of the six biggest mergers and acquisitions this year, the buyer was a private equity firm.

Out of $1.3 trillion in deals so far in 2006, these firms accounted for $346 billion, or 27 percent of them. That's almost triple last year's total of $119 billion.

So, what's behind the push to go private?

"In general the reason that so many of these public companies go private is that their CEOs are wary of Sarbanes-Oxley and all the new regulations and attention placed on publicly traded companies," said David Snow, the U.S. editor of Private Equity International.