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HealthSouth offers to buy back $350M of its stock

BIRMINGHAM, Ala. (AP) -- HealthSouth Corp., the country's biggest owner and operator of rehabilitation hospitals, said Wednesday it will buy back up to $350 million of its own common stock, by tapping its revolving credit line and spending some of its cash.

The company, based in Birmingham, Ala., said it's beginning a modified Dutch auction tender and will buy the shares for $22.50 to $25.50 per share.

The stock rose 57 cents, or 2.4 percent, to $24.66 by Wednesday afternoon. That's near the top of their 52-week trading range of $18.44 to $24.99.

In a modified Dutch auction, stockholders notify the company how many shares they'd like to sell and at what price within the announced range. The company reviews the offers and determines the lowest share price within its range that would enable it to buy back the shares it wants — in this case, either $350 million worth or a lower amount if not enough offers are received. All shares purchased are then bought at the same price.

Shareholders must make offers by the end of the day on March 19, unless the company extends the offer. Instructions and related information are being mailed to stockholders.

HealthSouth's board of directors approved the tender offer, but the directors and officers have said they don't intend to participate in the tender.

Ratings firm Moody's Investors Service Inc. called the tender offer "a credit negative," but said it's not changing HealthSouth's ratings or its stable rating outlook.

"The expected funding of the tender offer through a combination of available cash and a draw-down of the company's revolving credit facility will increase leverage and decrease available liquidity," Moody's said in a statement. "The transaction also represents a divergence from HealthSouth's financial policy that has previously focused on reducing leverage while having eschewed dividends and repurchases of common stock."

HealthSouth operates inpatient rehabilitation hospitals, outpatient rehab clinics and home health agencies across 27 states and Puerto Rico, helping patients regain their abilities as they recover from strokes, heart attacks, orthopedic conditions, amputations, brain or spinal cord injuries and other medical problems.