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Capella Healthcare, Mercy Health Deal Crumbles

More than a year after entering the due diligence phase of a proposed asset purchase agreement, Franklin, Tenn.-based Capella Healthcare and Chesterfield, Mo.-based Mercy have announced they have discontinued discussions to join their respective hospitals in Hot Springs, Ark.

The two systems announced a potential affiliation in April 2012 and signed an asset purchase agreement in September that would sell Mercy Hot Springs to Capella's National Park Medical Center. From there, the deal did not develop smoothly, as the Federal Trade Commission issued a subpoena to investigate into the sale, and the Vatican wasn't keen to approve the sale of Catholic Mercy Hot Springs to for-profit Capella.

The deal was initially intended to close before the end of last year, but the systems agreed to extend the deadline to next week.

"Because we anticipate continued challenges — over an indefinite timeline — in obtaining the needed approvals [from the FTC and Vatican]…we believe prolonging this uncertain and complicated path is not in the best interest of our local caregivers and the community," said Lynn Britton, president and CEO of Mercy, in a news release.

Capella CEO Dan Slipkovich said in the release it was "a difficult decision" to end the discussions, "especially given the tremendous amount of work and local support to bring together these two organizations."

Capella has struggled financially lately, posting losses for the last two fiscal years in excess of $14 million. The system has made several transactions with other systems in the last year, including acquiring the Eastar Health System in Muskogee, Okla., and forming a joint venture with Nashville, Tenn.-based Saint Thomas Health.

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