Ailing Firm May Be Forced Into Bankruptcy : Gateway Drops Its Offer to Take Over Westworld
An Atlanta hospital chain said Friday that it has dropped its $90 million offer for ailing Westworld Community Healthcare Inc., a move that could force the financially strapped Laguna Hills rural hospital operator to file for bankruptcy protection.
James R. Cheek, chairman of Gateway Medical Systems Inc., which had proposed the takeover last month, said his company withdrew the offer because of difficulties winning approval of the takeover plan from Westworld’s many creditors.
Gateway had offered to pay $90 million in cash and stock for all of Westworld’s common shares and debt in a deal that would have required Westworld’s creditors, who are owed about $170 million, to accept far less than total repayment of their loans. Cheek said Gateway remains interested in acquiring Westworld’s 14 hospitals if the “financial complications” of working with the creditors are removed with a bankruptcy filing.
Westworld President Stephen Arterburn has previously acknowledged the possibility that the company will file for bankruptcy reorganization, but he said late Friday that he is still talking with other potential bidders and that no other action will be taken until those talks are concluded.
Held at Bay
Filing for protection from creditors under Chapter 11 of the federal bankruptcy code allows a company to reorganize its debts while creditors are temporarily held at bay by the court. The benefit of such a filing for Westworld would be creating a creditor committee that could act on behalf of all those owed money by the company. Such a committee could vote to approve a takeover offer, such as Gateway’s, which offers less than full reimbursement to creditors.
Westworld’s financial slide has been as quick and dramatic as its aggressive and highly leveraged ascent in 1984-85. With the aid of borrowings and a rapidly rising stock performance, Westworld grew from two hospitals in 1982 to a 40-hospital chain by early 1986.
However, when revenues could not keep pace with the growing debt payments, the company started losing money and began cutting its operations. In the last 15 months, Westworld has lost nearly $135 million and has pared its chain down to 14 hospitals.
The company’s stock, which once traded as high as $15.375, is now worth about 25 cents per share.
