Laguna Hills-Based Hospital Company to Buy Texas Firms

LAGUNA HILLS —  In an ongoing consolidation of the troubled psychiatric care industry, Community Psychiatric Centers Inc. said Tuesday that it has tentatively agreed to buy Austin, Tex.-based Healthcare International Inc. and HealthVest.

The buyout value was not disclosed, but analysts estimated it to be worth about $330 million.

With the acquisition, CPC--which runs 51 hospitals in 18 states--will add an additional 1,400 beds to its 5,100 beds and will break into new markets in Texas, Colorado, Hawaii and Virginia, company spokeswoman Suzanne Hovdey said.

The Laguna Hills-based firm would also acquire two physical rehabilitation centers in Texas and Virginia and take over operation of the Brown Schools, which provide long-term live-in psychiatric care for children and adolescents.

CPC officials said they hope that the move will help the company become a national provider of mental health care, attracting contracts from large, multistate employers.

Analysts predicted that CPC would attempt to sell off about $100 million of the Healthcare and HealthVest assets, bringing the cost of the acquisition to about $230 million. That figure could drop somewhat, however, as the deal may not be finalized until spring.

As part of the transaction, Healthcare International, reeling under heavy debt, will likely have to file for bankruptcy, and CPC is expected to try to renegotiate Healthcare’s debt with its lenders as part of the transaction, said Rae Alperstein, analyst with Kemper Securities Group in Los Angeles.

The stocks of all three companies rose on Tuesday’s news. CPC, which is traded on the New York Stock Exchange, closed at $27.38, up $1.13. HealthVest rose $1.625 to close at $4.875, and Healthcare increased 32 cents to close at 50 cents. The stocks of both Texas companies are traded on the American Stock Exchange.

“This is not shocking in the sense that the psychiatric industry is going through a consolidation phase” from which “the rich will get richer and the poor will get poorer,” said analyst John F. Hindelong of Donaldson, Lufkin & Jenrette in New York.

“The well-managed companies like Community Psychiatric will not only come out of the shake-up, but they will benefit from some of the acquisition opportunities opened up by this difficult period,” he said.

Hindelong said the deal would allow CPC management to “expand their asset base, improve their geographic coverage and may add to their earnings per share, depending on how the details of this deal unfold.” Though large, the buyout is still “quite digestible” for CPC, he said.

Under the proposed deal, CPC would pay 75 cents for each share of Healthcare’s common stock and $1.50 for each share of convertible stock, the companies said. CPC would also acquire Healthcare’s outstanding subordinated debt for about 20% of the principal.

HealthVest shareholders would receive about $6 a share in cash.

CPC has not yet decided which assets to divest, Hovdey said, but it is likely to sell alcohol rehabilitation centers, nursing homes and medical office buildings.

“The ones we want are the residential treatment centers and rehabilitation facilities,” she said.

CPC remains interested in buying other hospitals, she added.

In March, CPC made an unsolicited, $1.1-billion buyout offer for another rival, the Charter Medical Corp. hospital chain of Macon, Ga. The move would have made CPC the nation’s largest provider of psychiatric services, but Charter rebuffed the offer.

Though the buyout bid remains on the table, Charter spokesman Andrew Brinner said the heavily indebted company has “turned the corner” on earnings, is renegotiating with its bondholders and has not changed its view of the CPC offer.

HMO merger announced. D5