ReadiCare Bid Called ‘Ridiculous’ : Medical Enterprises Inc. Spurns Merger Offer

U.S. Medical Enterprises Inc. said it will reject a $12.3-million merger offer by ReadiCare of Irvine

Thomas C. Borut, chairman of the Santa Monica-based operator of eight medical clinics in Los Angeles and Orange counties, called ReadiCare’s stock swap offer “ridiculous.” He said officials of his firm had attended only a one-hour, preliminary meeting on July 31 with ReadiCare representatives to discuss the possibility of a merger. During that meeting, he said, no stock exchange rate was discussed and both parties had agreed to keep the negotiations confidential.

However, on Monday ReadiCare issued a press release outlining an offer.

“If they were really serious about merging, it was a pretty insane move,” Borut said, referring to the press release. He said he believed that ReadiCare hoped the announcement would revive the confidence of ReadiCare’s stockholders, who have watched the firm sustain consecutive quarterly losses amounting to a total loss of $494,000 in its 1984 fiscal year, ended Feb. 28, and a loss of $285,000 in the first quarter of its current fiscal year. ReadiCare operates 24 medical clinics in California.

“In my opinion we have got a company here (ReadiCare) in a very tight cash position and its institutional investors would like to see it make a positive move,” Borut said.

Duty to Inform

ReadiCare’s senior vice president, James Ripp, denied that his firm had publicized its offer to pacify nervous shareholders. Rather, he said, “we felt as a public company we had a duty to inform our shareholders” of a significant corporate undertaking. Ripp said that ReadiCare’s financial position is steadily improving. He blamed the losses on start-up costs that the firm has incurred in its first three years of business, during which it has expanded from two to 24 clinics.

Borut said there was “no question” that on his recommendation Medical Enterprises’ directors will reject ReadiCare’s offer at their board meeting next Wednesday. He said the offer is opposed by himself as well as the president of the firm, Michael P. O’Neil, and the firm’s corporate medical director, Dr. Anthony Rodas. The three officers control more than 50% of the firm’s stock, he said.

While rejecting ReadiCare’s current offer, however, Borut said Medical Enterprises wants to expand and still might consider merging with ReadiCare under different terms. Borut said that Medical Enterprises would strongly object to any merger with ReadiCare that would make ReadiCare the surviving and managing corporation. “I see no evidence to demonstrate they are capable of running this type of company well,” he said.

Ripp said he does not believe that Medical Enterprises’ desire to acquire and control ReadiCare is “realistic.”

‘Offer Too Low’

The $6-a-share exchange rate that ReadiCare is offering for Medical Enterprises’ stock, Borut said, is too low since it is only 63 cents a share more than the stock is currently selling for in the marketplace.

But Ripp said that at the meeting with Medical Enterprises, ReadiCare had put its offer on the table and made clear that in any merger it expected to be the surviving corporation. At that time, he said, Medical Enterprises and its investment bankers “listened to it (the offer). There was no outrage.”

Ripp said he was “a little surprised” by Medical Enterprises’ public response to his company’s offer. “It sounds like an emotional reaction to me,” he said.

Borut said that Medical Enterprises had posted earnings of $202,000 on $6.5 million in revenues in its last fiscal year ended March 31. He ascribed a fourth quarter loss of $200,000 to costs associated with the company going public last year. He said he expected that the first quarter of 1985 will be “flat to slightly profitable” for the firm.

By contrast, Borut said that ReadiCare appears to have chronic losses. “They are strapped to the gills,” he said. He added that Medical Enterprises would have to diagnose ReadiCare’s financial health “clinic by clinic” before deciding whether to acquire the company.