Founder Quits Posts at Ailing Westworld

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, Calif.-based operator of rural hospitals also said that Peter Donald, who was the company’s vice chairman, resigned Tuesday. 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.

Westworld stock closed Tuesday in over-the-counter trading at just 87.5 cents a share, trading for the first time at less than $1 a share. During 1986, Westworld traded for as high as $15.375 a share.

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 the debentures they hold. “I was an obstacle to the financial institutions’ confidence in the company, so I needed to leave,” he said.

Dunn said that he decided to resign Tuesday 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.

Debt is at the root of much of Westworld’s current 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.