Baxter Travenol Laboratories, clouding the prospects of the previously planned mega-merger of Hospital Corp. of America and American Hospital Supply, on Friday proposed a merger with American Hospital Supply.
The announcement was made at 2:30 p.m. EDT, four hours after Evanston, Ill.-based American asked that trading in its stock on the New York Stock Exchange be suspended. It also coincided with balloting among HCA and American stockholders on the proposed merger of those two companies, the results of which are scheduled to be announced July 3.
Karl D. Bays, American Hospital Supply's chairman and chief executive, said he was told of the Baxter proposal in a letter from Vernon R. Loucks, president and chief executive of Baxter Travenol, which is based in nearby Deerfield, Ill. He said Baxter Travenol offered to pay $50 in cash per share for half of American's stock and swap 3.01 shares of its common stock for each of the remaining shares. The deal would be worth about $3.26 billion.
Baxter's offer clouds the future of a merger plan between American and Nashville, Tenn.-based HCA, the nation's largest for-profit hospital chain, with 420 facilities. That plan, announced April 1, would have created the largest health-care company in the nation, with a market value of $6.6 billion.
The prospect of having to compete against such a health-care monolith, experts say, apparently led Baxter to propose a merger with American. However, American may have encouraged Baxter because, industry observers note, several hospital purchasing agents have publicly threatened to withdraw business from American because of its agreement with HCA.
As it is, the Justice Department is reviewing the proposed combination of American and HCA. A deal with Baxter could draw even closer scrutiny because those two companies compete directly.
Baxter, which had sales of $1.8 billion in 1984, is a leading manufacturer of intravenous solutions, kidney dialysis equipment and related medical supplies. Recently, its sales and profits have been hurt by declining hospital admissions.
Barbara Santry, a health-care analyst at Alex Brown Partners in Baltimore, said Baxter apparently hoped to offer its excess production capacity to American--which contracts out the manufacture of more than 75% of the 130,000 medical products that it supplies to hospitals--in exchange for American's greater marketing prowess.
American said its agreement with HCA contained provisions that allow HCA to obtain a 35% interest in American in the event of a takeover attempt by a third party, but it is not clear whether those provisions would be triggered in this instance.
In trading Friday on the New York Stock Exchange, American's stock closed up $2.625 at $37. HCA also rose, by 87.5 cents to $47.50. But Baxter's stock fell 75 cents, closing at $15.875.
The mixed stock picture on Wall Street once again signaled investors' aversion to mergers involving hospital-supply companies, which have been among the first concerns in the $400-billion-a-year medical industry to feel the brunt of new corporate health-insurance plans as well as new Medicare regulations that impose ceilings on the amount that the government will pay for hospital care.
Wall Street reacted similarly to the proposed union of HCA and American Hospital.
Baxter officials could not be reached for comment. The Justice Department also declined to comment.
"This is an area of more classic business combination than HCA and American and could conceivably be a diminution of competition," said Richard K. Eamer, chairman and chief executive of Los Angeles-based National Medical Enterprises.
Baxter will first have to test a provision of the HCA-American pact that authorizes HCA to demand 39 million shares of unissued American stock, or 35% of the company, if American is subject to an unfriendly takeover by a third party.
But Roland Wussow, HCA vice president of corporate communications, said his company is taking a wait-and-see attitude: "The intent (of the merger provision) was to eliminate the possibility of a hostile takeover offer. . . . We are watching this latest offer with interest."