Westworld Says Founder Dunn Is Leaving Firm : Operator of Rural Hospitals Embroiled in Credit Squeeze
Just three weeks after announcing plans to retrench following a four-year expansion binge, financially troubled Westworld Community Healthcare Inc. said Tuesday that company founder Michael Dunn has stepped down as chairman, president and chief executive.
The Lake Forest-based operator of rural hospitals also said that Peter Donald, company vice chairman, has resigned. Before assuming the largely ceremonial post in May, Donald had been Westworld’s president and chief operating officer.
The surprise resignations, effective Monday, are the latest developments in what has been a disappointing year for Westworld, once considered a darling of Wall Street.
Growing rapidly through aggressive acquisitions, the 4-year-old company expanded to 38 hospitals and dozens of specialty clinics in rural areas of 15 states by early this year, running up massive debt in the process.
Blaming low Medicare reimbursments, the farm crisis and the shakeout in the oil patch, Westworld had a $1.8-million net loss during the nine months ended Sept. 30. That loss compares with net earnings a year earlier of $2.7 million.
Because Westworld will incur a “substantial” writeoff as a result of the sale or closing of at least seven hospitals and dozens of rural clinics before the end of the year, the company said a 1986 loss is inevitable.
Dunn said he believed that without his resignation, the company might not be able to complete its planned refinancing of $65 million in bond debt. That plan hinges on getting the bondholders to accept an equity stake in the company in exchange for debentures they hold.
“I was an obstacle to the financial institutions’ confidence in the company, so I needed to leave,” he said. Dunn said he was under no direct pressure from either Westworld’s directors or lenders.
Dunn said he decided Tuesday to resign after consulting with company director Walter S. Huff, who was named to succeed him as chairman. Stephen Arterburn, Westworld’s chief operating officer since May, was named president and chief executive.
Walter Kaczor has been appointed executive vice president and chief financial officer, Westworld said in a prepared statement. Arterburn and Kaczor were also elected to the company’s board.
Westworld stock closed Tuesday at 87.5 cents per share in over-the-counter trading, the first time it has closed under $1. During 1986, Westworld traded as high as $15.375 a share.
Debt is at the root of much of Westworld’s crisis. During the first nine months of 1986, interest payments increased 186% to $9.5 million. Last week, Westworld missed a $2.5-million interest payment on $35 million in subordinated debentures.
But in addition to its financial woes, Westworld is harassed by a rear-guard campaign being waged by critics in many of its rural markets, who say that the company greedily charges too much for the health care it provides.
Earlier this year, Westworld became the target of a pair of civil lawsuits filed by the attorney general of Missouri, who is accusing the company of “instituting and failing to disclose fraudulent billing practices” at two hospitals in that state.
The suits, filed in June, accuse Westworld of adjusting hospital bills to meet preset daily rates, regardless of the service rendered. Dunn, in an earlier interview, rejected the charges as “absolutely false.”
