MEDPARTNERS: MERGER FOLD LEADS TO PLUNGING SHARES
"MedPartners Inc. shares plummeted 45% [yesterday] after itsThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
planned $8-billion takeover by rival PhyCor Inc. collapsed," the
Los Angeles Times reports. Contributing to the "slide" was the
company's announcement that it expects to take a $145 million
charges for the fourth quarter and that it is likely to report
losses of 20 cents to 25 cents per share. Further, Medpartners
said "it expects fourth-quarter pretax charges of $115 million
for restructuring some operational units and $30 million for
discontinued operations" (1/9). While lowering fourth quarter
estimates, MedPartners also "lowered its earnings forecast for
all of 1998," to about $1 per share for the year, replacing
former consensus analysts' estimates of approximately $1.40 per
share, the Wall Street Journal reports.
BEHIND THE DEAL
Although both MedPartners and PhyCor have not discussed
details of their "breakup," sources "familiar with the talks said
that PhyCor grew increasingly nervous in recent weeks about the
financial underpinnings of the transaction." As of September 30,
MedPartners had accrued more than $1 billion in long-term debt,
which, if added to PhyCor's $150 million debt, would have left
the combined company "more vulnerable to an earnings slump if
business weakened," the Wall Street Journal reports. "In sum,
PhyCor 'realized that the earnings basis for the deal wasn't
there,'" said BancAmerica Robertson Stephens analyst Thomas
Hodapp (Sharpe/Anders, 1/9).
According to analysts, MedPartners "ran into trouble ...
because it accepted flat-fee arrangements for services that ended
up costing more," Bloomberg/Chicago Tribune reports.
Specifically, analysts say that higher costs resulted from a new
"open access" policy in California last year "that gave patients
easier access to specialists" (1/9). Financial Times reports
that MedPartners "blamed its current financial difficulties
primarily on the consolidation of its newly acquired operations
in southern California as well as the previously announced
closure of a mail-order pharmacy unit" (Labate, 1/9). According
to the Los Angeles Times, MedPartners' miscalculations in its
western division proved a mistake which analysts say could have
"prompted PhyCor's reversal ... and doesn't augur well for
MedPartner's prospects" (1/9).
Now with the PhyCor deal "scuttled," the Wall Street Journal
reports that "investors are wondering how deep MedPartners'
troubles are." "At the very least, analysts noted, MedPartners'
depressed stock price is very likely to make it difficult for
MedPartners to keep up its aggressive acquisition pace, which was
one of the key drivers of its earnings growth." MedPartners
stock plunged $8.171875 or 45% yesterday to close at $10 in New
York Stock Exchange composite trading (1/9).