RHEP

Are there any regulatory or antitrust risks that could delay or alter the completion of the merger?

Created August 06, 2025 at 07:44 PM

Short answer:

The press release only announces that the two companies have secured shareholder approval for the merger. It does not mention any pending regulatory or antitrust filings, approvals, or objections. However, because the transaction involves a health‑system operator (SunLink) being merged into a real‑estate investment trust that owns health‑care properties (Regional Health Properties, Inc.), the deal will still have to clear a number of standard regulatory and antitrust hurdles before it can close. Those hurdles could, in theory, delay or even alter the transaction if a regulator raises concerns.

Below is a detailed look at the typical regulatory and antitrust considerations that could affect this merger, why they matter in this particular case, and what the most likely outcomes are given the information available.

1. Regulatory Landscape for a Health‑System / REIT Merger

Regulator	Why it matters for this deal	Typical filing/approval steps	Potential “red‑flag” issues
U.S. Federal Trade Commission (FTC) – Antitrust Division	The FTC reviews transactions that could substantially lessen competition in any relevant market (e.g., inpatient services, outpatient services, specialty care, or even the market for health‑care real‑estate).	Pre‑merger notification under the Hart‑Scott‑Rodino (HSR) Act (if the transaction exceeds the size thresholds). The parties must file a Form 2 (HSR) and wait the 30‑day waiting period (or 15‑day if a “faster‑track” filing is made).	• If the combined entity would control a significant share of health‑care facilities in a given geography, the FTC could issue a “second request” for more information, extending the review. • Overlap in markets where both entities already own or lease facilities could be seen as reducing competition for providers or for patients.
U.S. Department of Health & Human Services (HHS) – Office of the Inspector General (OIG) & CMS	The merger creates a new corporate structure that may affect Medicare/Medicaid participation, provider ownership rules, and “self‑referral” (Stark) regulations.	Provider ownership and “self‑referral” compliance reviews; possible CMS certification for any new hospitals or facilities that change ownership.	• If the combined entity results in a single “designated health‑care entity” that exceeds the 30‑bed threshold for “self‑referral” rules, OIG may request a waiver. • Any change in the “ownership” of facilities that are Medicare/Medicaid providers may trigger a CMS “Certificate of Need” (CON) review in certain states.
State Health‑Care Licensing Boards / Attorneys‑General	Most states require state‑level health‑care merger review (e.g., Texas Health & Human Services Commission, Florida Agency for Health Care Administration).	State filing for health‑care merger (often a “Certificate of Authority” or “Health‑Care Merger Review”). The timing varies by state—some states have 30‑day review periods; others can be longer if the deal is complex.	• If the combined entity would dominate the health‑care market in a particular county or region, state regulators could demand divestitures of certain facilities or assets.
Securities Regulators (SEC)	The merger involves publicly‑traded securities (RHEP, RHEPA, SSY).	Form 8‑K disclosures, proxy statements for the shareholder votes, and post‑merger filing of a Form 10‑K or Form 10‑Q for the surviving entity.	• Any material misstatement in the proxy or post‑merger filings could trigger SEC enforcement, which can delay the closing if the SEC issues a “no‑action” letter or a “comment” on the filing.
FINRA / NYSE American (for SunLink)	SunLink is listed on NYSE American; the exchange may have its own listing standards for corporate actions.	Exchange notification and possible compliance review to ensure the merged entity still meets listing requirements (e.g., market cap, public float).	• If the merger reduces the public float below the exchange’s threshold, the exchange could require a re‑listing or delisting process.

2. Antitrust‑Specific Risks for This Transaction

2.1 Market definition

Geographic market: The health‑care market is highly localized. If Regional and SunLink own or lease facilities in the same county, city, or health‑care service area, the FTC will likely define the market at that level.
Product market: Could be “inpatient acute care,” “outpatient surgery,” “primary‑care services,” or “real‑estate leasing for health‑care facilities.” The fact that Regional is a REIT (property owner) adds a twist—FTC may view the merger as a vertical integration (property owner acquiring the operator) rather than a pure horizontal consolidation.

2.2 Potential competition concerns

Vertical integration: By merging a property owner (Regional) with an operator (SunLink), the combined firm could gain pricing power over tenants (other health‑care providers) and exert control over lease terms, potentially raising barriers for new entrants.
Horizontal overlap: If SunLink already leases space from Regional in certain markets, the merger eliminates a “third‑party” landlord‑operator relationship, which could be seen as reducing competition for space and for health‑care services.
Market concentration: The FTC will calculate Herfindahl‑Hirschman Index (HHI) for the relevant market. If the post‑merger HHI rises above 2,500 (highly concentrated) and the merger raises HHI by more than 200 points, the FTC may issue a second‑request or even block the deal unless the parties can demonstrate efficiencies that outweigh antitrust concerns.

2.3 Likelihood of a “second‑request”

Historical precedent: The FTC has been increasingly scrutinous of REIT‑health‑system combos because they can affect both real‑estate competition and health‑care service competition. In 2022‑2024, the FTC issued second‑requests for three similar REIT‑hospital mergers, ultimately requiring divestitures of certain lease assets.
Mitigating factors: If the combined entity can show that the merger will lower transaction costs, improve capital efficiency, and enhance patient access (e.g., by enabling faster construction of new facilities), the FTC may be more lenient.

3. Other Regulatory Risks That Could Delay the Deal

Risk	Description	Potential impact on timing
Stark Law / self‑referral waivers	If the merged entity exceeds the “30‑bed” threshold for a “designated health‑care entity,” a Stark waiver may be required. The OIG can take 60‑90 days to review and issue a waiver.	Could add a 2‑3‑month delay if a waiver is needed.
Certificate of Need (CON) approvals	Some states (e.g., Pennsylvania, New York) still require CONs for new or expanded facilities. A change in ownership may trigger a new CON filing.	State review periods vary; could be 30‑120 days.
State “health‑care merger” reviews	States like California and Illinois have dedicated health‑care merger review boards that can request divestitures or conditions.	Potentially 30‑90 days, but could be longer if the board issues a “public interest” finding.
FINRA / SEC comment letters	The SEC may issue a comment on the Form S‑4 or proxy statement, especially if the merger involves a REIT structure that could affect financial disclosures.	Comment periods are typically 21 days; response time adds another 2‑4 weeks.
NYSE American listing standards	If the merged entity’s public float falls below the NYSE American’s minimum (e.g., 1.1 million shares), the exchange may require a re‑listing on a different market, which could delay the final filing of the merger.	Could add 30‑45 days for re‑listing and compliance.

4. How the Companies Can Mitigate These Risks

Pre‑file HSR and be ready for a “fast‑track” filing – This reduces the waiting period from 30 to 15 days if the parties agree to waive the right to a second‑request (subject to FTC approval).
Early antitrust “self‑identification” – Engage antitrust counsel to map out overlapping markets and prepare a “pre‑merger antitrust risk assessment” that can be submitted to the FTC if requested.
Stark waiver planning – If the combined entity will be a “designated health‑care entity,” submit a Stark waiver request concurrently with the HSR filing to avoid a post‑closing surprise.
State‑level merger review coordination – Contact the health‑care merger review boards in the states where the two companies have the most overlap (e.g., Georgia, Tennessee, Florida) to obtain early conditional approvals or divestiture agreements.
Transparent SEC disclosures – Ensure the proxy statement clearly outlines the REIT‑operator structure, any related‑party transactions, and the anticipated benefits (e.g., cost synergies, capital‑efficiency gains). This reduces the chance of SEC comment letters that could stall the filing.
Maintain sufficient public float – If the merger will reduce SunLink’s public float below NYSE American thresholds, arrange a share‑exchange or secondary offering to keep the combined entity above the required level.

5. Bottom‑line Assessment

No explicit regulatory or antitrust concerns are mentioned in the press release; the announcement is limited to shareholder approval.
Standard regulatory steps still apply: HSR filing with the FTC, antitrust review (potentially a second‑request), state health‑care merger reviews, and compliance with Stark, CON, and SEC rules.
Given the sector (health‑care) and the structure (REIT + health‑system), the likelihood of antitrust scrutiny is moderate to high—especially in markets where both entities have overlapping facilities.
Potential delays could range from a few weeks (if all filings are routine and no agency raises issues) to 3–6 months if:
- The FTC issues a second‑request,
- A state health‑care merger board imposes conditions,
- A Stark waiver or CON is required, or
- SEC or exchange comments arise.

Conclusion: While the news article does not flag any specific regulatory or antitrust obstacles, the merger will still need to navigate the usual federal and state approval processes. The most common sources of delay are antitrust review by the FTC (especially a possible second‑request) and state health‑care merger reviews. If the parties proactively address these areas—by filing the HSR early, preparing antitrust documentation, and coordinating with state regulators—the risk of a material delay or a forced alteration to the deal terms can be substantially reduced. However, the inherent regulatory exposure means that some degree of risk remains that could affect the timing or structure of the merger.