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Steward says it ‘unilaterally withdrew’ from merger talks

An executive at Steward Health Care System told presidents of Steward’s hospitals Monday that the Boston-based chain “unilaterally withdrew” from talks to acquire Mercy Health System in Maine after concluding Mercy had misrepresented its finances.

The account given in a confidential memo from Steward director of media relations Chris Murphy, obtained by the Globe, differed from a statement Steward and Mercy released jointly late Friday afternoon saying the letter of intent to merge had been terminated because the parties “were unable to come to a definitive agreement” during negotiations.

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Among other problems, Murphy wrote, Mercy’s data on patient volume and trends proved much worse and construction costs for its new Portland, Maine, campus were far higher than Steward had been led to believe. Also, he said, Mercy’s parent, Catholic Health East, withdrew $9 million in cash from the Maine hospital after Steward had signed a letter of intent to buy it.

“With each day that passed during the due diligence process, our confidence in the numbers presented by Mercy eroded to the point that we were unable to responsibly submit a bid,” Murphy wrote to the heads of his system’s Massachusetts hospitals. “We came to the conclusion that, even if Mercy were to give us their hospital for free, we couldn’t make the numbers work.”

Susan Rouillard, chief development and communications officer for Mercy Health System, would not comment Monday on its negotiations with Steward. But she disputed Murphy’s portrayal of Mercy’s financial conduct.

“Mercy has never misrepresented its finances or volume numbers, and its relationship with parent Catholic Health East has continued in the ordinary course of its business,” she said.

Murphy confirmed Monday that he sent the memo, but declined to discuss it.

The collapse of Steward’s talks with Mercy, following the failure of its bids to take over hospitals in Rhode Island and Florida over the past 18 months, seemed to underscore the lack of progress so far in the for-profit health care system’s stated plans to expand its franchise nationally.

In his memo, Murphy complained of press coverage from Maine that gave “the mistaken impression that Steward had lost a competitive bid.”

Murphy blamed “Mercy’s refusal to adhere to our jointly approved public messaging” and urged Steward hospital presidents to correct the record if they fielded questions from their staffs or local community leaders about the terminated talks.

Shortly after Steward and Mercy released their Friday statements disclosing that negotiations had ended, Mercy said it had signed a new letter of intent to merge with the nonprofit Eastern Maine Healthcare Systems in Brewer, outside Bangor.

“This process paves the way for Mercy to become a member of a health delivery system that covers half of Maine’s population and offers a comprehensive continuum of care,” the parties said in a statement.

Suzanne R. Spruce, director of community relations for Eastern Maine Healthcare, would not comment on the Steward memo.

“That’s really a Mercy-Steward issue,” she said.

Robert Weisman can
be reached at
weisman@globe.com.
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