Community Health Systems explores financial options as rumors of sale swirl

As rumors swirl and published reports allege Community Health Systems is planning to sell its business, the system itself admitted in a statement Monday that they are "exploring a variety of options with financial sponsors, as well as other potential alternatives."

They said the discussions are in a preliminary stage, there is no timeline established for the exploration, and there is no guarantee the review will result in any kind of transaction.

According to Bloomberg news, CHS stock spiked 16 percent on Friday as reports of the potential sale continued to circulate, however, the company's stock price has since fallen.

Meanwhile, Pennsylvania law firm Ryan & Maniskas announced Friday that a class-action lawsuit has been filed in U.S. District Court for the Middle District of Tennessee on behalf of those that purchased the common stock of CHS spin-off Quorum Health Corp., which owns or leases 38 hospitals across 16 states that are primarily located in rural areas with populations of 50,000 or less, on behalf of investors  who received the shares in connection with the spin-off.

[Also: Community Health Systems completes Quorum spin-off, nets $1.2 billion]

The complaint alleges that Quorum and certain of its executive officers made false and misleading statements, and failed to disclose to investors that many of Quorum's hospitals were underperforming at the time of the spin-off as well as other "indicators of impairment" that were present at the time. It also alleges Quorum failed to inform investors about the issues, and that as a cumulative result, Quorum's public statements were materially false and misleading.

The firm reported that for the quarter ending June 30, 2016, QHC reported a net loss of $245 million, or $8.63 per share, which it blamed on more than $250 million of asset impairment and goodwill charges 'relating to the carryover allocation of goodwill' at the time of the spin-off. Afterward, Quorum's chief financial officer said "there were indications of impairment" at the time of the spin-off and thereafter.

Following this news, the company's stock declined $4.99 per share, or nearly 50%, to close on August 11, 2016 at$5.03 per share, the firm said.

[Also: CHS will unload 2 more hospitals as revenue continues to drop]

In August, Community Health Systems announced they would unload two more hospitals than originally planned, bringing the total number to 12, according to a transcript of a second-quarter earnings call.

The sale, which was originally expected to be $530 million, will now total $850 million, representing about $1.45 billion in annual revenue -- up from the $1 billion that was projected before the two extra hospitals were added.

[Also: CHS rural hospitals spin-off Quorum Health loses $5 million in 1st quarter]

The transactions are expected to be completed sometime this year, CEO Wayne Smith said during the earnings calls, and added that each is underperforming; earnings before interest, taxes, depreciation and amortization are in the single digits.

Also in August, CHS posted a second-quarter net loss of $1.43 billion after writing down the value of its hospital assets,  at the time attributing the loss to their having "overestimated the long-term fair value of its hospitals," Bloomberg reported.

Twitter: @BethJSanborn