Its stock at an 8-year low, O.C.’s Apria Healthcare agrees to a $1.6-billion buyout by Blackstone Group

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Apria Healthcare Group Inc., unable as a public company to turn its home healthcare services business into a consistent earnings-growth story, now will try that trick as a private company.

Lake Forest, Calif.-based Apria said this morning it agreed to a $1.6-billion buyout by private-equity giant Blackstone Group.

Among other things, the deal shows that the leveraged-buyout business isn’t dead, even though credit has tightened dramatically for such transactions. Bank of America, Wachovia Corp. and Barclays Capital have agreed to finance the takeover.

The buyout also shows a change of heart by Apria CEO Lawrence Higby and the company’s board: Apria put itself up for sale in June 2005, driving its shares as high as $36.75. But no decent bids arrived, and the company pulled itself off the market in October 2005, saying it would go it alone.

Now, with its stock last week at $15.55 -- the lowest since 2000 -- Apria is turning to Blackstone.

Shareholders will be offered $21 a share in cash -– a 33% premium to the stock’s price of $15.82 on Wednesday. The stock was up $4.26 to $20.08 this morning. The $1.6-billion price tag includes about $925 million for the shares; the rest is debt assumption.

Founded in 1995 through the merger of two Orange County-based rivals, Homedco Group and Abbey Healthcare, Apria is a major provider of home healthcare services for people who need regular infusions or respiratory therapy such as oxygen systems. It serves more than 2 million patients a year, and has grown in part via acquisitions of mom-and-pop operators.

The company’s sales reached a record $1.6 billion last year. But net income, at $86 million, was down from $114 million in 2004.

Apria has struggled with Medicare payment cuts for its services. In the first quarter of this year the company’s revenue jumped 35% to $528 million, boosted by an acquisition. But net income was $20.8 million, flat with the same quarter in 2007.

Growth in the company’s home-respiratory business ‘was offset by certain Medicare payment reductions, which began last year, as well as lower growth rates in low-margin inhalation therapy drugs and home medical equipment,’ Higby said in the company’s first-quarter report.

Apria warned in May that Medicare reimbursement shortfalls for certain respiratory drugs would clip revenue this year by $12 million more than the company had previously estimated.

Plenty of health-care companies that should have been spectacular growth stories have been hobbled by Medicare cutbacks in this decade. But Apria stands out as a long-term bust for investors: The stock is no higher today than it was in 1995.

Its problems were worse in the late 1990s, when it was bleeding red ink and suffered a federal investigation of its billing practices. Apria’s fortunes improved after San Diego-based activist investor Relational Investors took charge in 2000 and 2001.

Now Blackstone gets a turn. The buyout titan manages assets worth $113.5 billion. Its private equity arm owns stakes in about 50 businesses, including several health-care firms. Among them: drugmaker Catalent Pharma Solutions, orthopedic device manufacturer ReAble Therapeutics, and TeamHealth, which outsources physician staffing.

Under the deal’s terms, Apria can beat the bushes until July 24 to see if another buyer emerges to top Blackstone’s bid. But with the stock trading below the offering price of $21 today, Wall Street doesn’t believe there’s a better pitch coming.