Westside Hospital and 36 Others to Be Sold by AMI
American Medical International will sell 37 hospitals in 10 states--including facilities in Los Angeles, San Diego and El Cajon--to an employee group for about $910 million, the company said Wednesday.
The plan, scheduled for completion Aug. 31, is the latest in a series of steps by the Beverly Hills-based health-care concern to boost earnings through consolidation and belt-tightening. AMI eliminated about 1,000 jobs over the first two months of 1988, a move that affected most of the company’s 85 hospitals. Layoffs will also probably be part of this latest effort, but the company has not yet determined how many employees will be affected, said Mick Taylor, a spokesman for AMI.
“The corporate office will be affected and the regional structure will be affected” by a new round of layoffs, Taylor said.
AMI executives said the hospitals will be sold for $600 in cash and $310 million in preferred stock, notes and assumed debt to a newly formed company that will be owned by an employee stock ownership plan, or ESOP. The new company, which does not yet have a name, will be headquartered in Dallas and headed by Kenneth S. George, currently a senior vice president and director of the chain’s Southwest region. Employees working at the 37 affected facilities--about 10,000 in all--will become employees of the new company.
4,200 Beds in All
The new company’s earnings will be used to repay the $600 million in loans, and the current pension fund of the affected 10,000 will not be used to finance the deal, Taylor said. Under the plan, employees’ equity in the new company will grow as their seniority grows.
The new company will get a total of 4,200 beds, including Westside Hospital in Los Angeles, Mission Bay Hospital in San Diego, Valley Medical Center in El Cajon and facilities in Visalia and Healdsburg in Northern California. The other hospitals involved in the sale are in Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri, Oklahoma, South Carolina and Texas.
Some of the hospitals lost money recently, but most were profitable, Taylor said. Collectively, the 37 facilities posted revenue of $507 million and operating earnings of $135 million, excluding depreciation, taxes, corporate overhead and interest, according to the company.
AMI will retain 48 hospitals and five psychiatric clinics in the United States and 22 hospitals and three psychiatric clinics overseas.
American Medical has received loan commitments from banks for part of the cash portion of the deal, according to company executives. AMI will use the the proceeds from the sale--$450 million after taxes and expenses--to reduce debt and repurchase stock. AMI has nearly $1.7 billion in long-term debt, and the stock purchase is part of a plan to boost stock value.
Sharper Focus Seen
However, Taylor said a desire to make AMI smaller and more manageable--not monetary gain--was the company’s primary motive.
“Both groups of hospitals can be managed more effectively in a smaller, leaner, more tightly focused type of management framework,” he said.
The plan did not surprise industry analysts, since a number of hospital chains have been looking for ways to reduce costs. Hospital chains have had financial difficulties since 1983, when federal reforms led to decreases in payments from Medicare, which provides about 40% of the industry’s revenue. The industry has also been challenged by the rise of health maintenance organizations, analysts say.
“My impression is they wanted to get rid of 20 to 40 hospitals and there were no buyers,” said Joyce Albers, an analyst at the investment firm First Boston. “This makes a lot of sense.”
Rae Alperstein of Smith Barney, Harris Upham said AMI, the subject of recent takeover rumors on Wall Street, is now perceived as less of a target because its management has become more active.
