American Hospital Fight Heats Up : Baxter Lines Up Credit, May Launch Unfriendly Tender

Baxter Travenol Laboratories stepped up its campaign to merge with American Hospital Supply Corp. on Wednesday by announcing it has lined up $2.5 billion in credit, despite American’s rejection of Baxter’s overtures.

Baxter’s announcement heated up a battle being waged in the board rooms of three health-care industry giants: Baxter Travenol of Deerfield, Ill.; American in Evanston, and Hospital Corp. of America of Nashville, Tenn.

Many analysts feel the conflict marks the beginning of a massive realignment in the nation’s health-care system.

American, a $3.4-billion-a-year manufacturer and distributor of health-care products, is sought as a merger partner by both Baxter and HCA.

After American rejected Baxter’s proposal Tuesday, Baxter announced Wednesday that it had lined up a $2.5-billion credit line with a group of 21 banks, led by First National Bank of Chicago and Morgan Guaranty Trust, and had scheduled a special meeting of its directors for today.

Two central issues stand out, according to stock analysts and corporate officials. First, said Larry Feinberg, a medical stock analyst in New York with Dean Witter Reynolds, is: Which merger would be more beneficial to the nation’s health-care industry? Second, said Vernon R. Loucks Jr., president and chief executive of Baxter Travenol, there’s the issue of stockholder rights.

American’s directors Tuesday unanimously rejected Baxter’s $50-a-share offer to merge the two companies. Karl D. Bays, chairman and chief executive, said American would proceed with a proposed merger with HCA.

No Chance to Vote

The dollar value of the HCA merger would be about $35 a share for American’s stockholders, and a special meeting to vote on the proposal was set for July 12.

But, because American’s directors rejected Baxter’s proposal, shareholders won’t have the opportunity to vote on a proposal that could be more profitable.

Asked Loucks: “Does the stockholder have a say in what happens to his investment dollar?”

In New York Stock Exchange composite trading Wednesday, American Hospital rose $1.125 to $37.875. Baxter fell 37.5 cents to $15.625, while HCA gained 25 cents to $48.25.

Baxter’s announcement that it had lined up $2.5 billion of credit led to speculation among stock analysts that it might make an unfriendly cash tender offer.

Loucks acknowledged that such an offer was an option but said that it was premature to discuss options until Baxter’s directors meet today.

In the merger with HCA, American’s stockholders would exchange each of their shares for three-quarters of a share of stock in the merged corporation, and HCA’s stockholders would exchange each of their shares for a full share in the new corporation. The two companies would operate separately under a common holding company called Kuron, Bays said.

Baxter proposed to pay $50 cash per share for half of American’s stock and $50 worth of its own stock for each share of the remainder.

But a financial adviser close to HCA, who asked not to be named, said he viewed the Baxter offer as “nowhere near $50” because of a provision in the merger agreement between HCA and American calling for the issue of new stock.

Todd Richter, a stock analyst in New York with Morgan Stanley & Co., suggested that an HCA-American combination might have frightened Baxter into making a proposal just to disrupt the merger.

“Maybe Baxter is trying to play spoiler here,” he said.

One leader in the health-care industry said a merger between HCA and American was considered less desirable than a Baxter-American merger.

“We would feel much more comfortable with the Baxter-American combination than we would the HCA-American combination,” said Charlie Ewell, president and chief executive of American Health Care Systems, a San Diego-based nonprofit hospital management company that had revenue of $7 billion in 1984.

“HCA is a major hospital competitor of ours, and we don’t like the idea of continuing to buy from American Hospital Supply . . . which will end up helping HCA, which will compete with us,” Ewell said.

He said his company buys about $1 billion of health-care supplies a year, and the company is reviewing and rebidding many of the contracts that it has with American Hospital Supply.

“Our people are upset about indirectly helping HCA,” he said.

He said such a combination would be inflationary for health-care costs.

Spokesmen for American Hospital Supply were unavailable for comment despite repeated requests for interviews.

Jerry K. Myers, executive vice president and chief financial officer, was quoted in the Chicago Tribune as saying of Baxter’s bid: “I think there was recognition on their (Baxter’s) part that a combination of American and HCA would really create the pre-eminent health company in the country and would really change the landscape of the health-care industry.

“They saw they were not a part of it.”

American’s financial adviser said that, after several months of study, he determined the potential growth in per-share earnings to be below 10% a year for the combined Baxter-American corporation and greater than 15% a year for the combined HCA-American corporation.