AMI Plans to Lay Off 300, New Chief Says
American Medical International, the Beverly Hills-based hospital chain that has just weathered a controversial leadership change, has begun to lay off about 300 of its 2,000 employees as part of a cost-cutting effort.
The layoffs, which are part of a larger cost-reduction plan, were outlined Tuesday in an interview with AMI Chairman Royce Diener. AMI’s board of directors appointed Diener to be chairman and chief executive until the company selects a replacement for Walter L. Weisman, who resigned under pressure last week. Diener was a member of a board committee that prompted the resignation.
“The layoffs will be across the board,” Diener said, citing plans for cuts in administrative support departments such as purchasing, personnel, finance and marketing. Nurses and doctors will not be affected by the plan, which is designed to cut costs by $36 million a year, according to company officials. Travel budgets will be reduced and marginal activities are targeted for elimination under the reduction plan.
In other comments, Diener--a director and former AMI chairman who recommended Weisman for the top post at the company--said the board moved against Weisman only after forming a committee to conduct an independent study of the company’s problems. Among others, the committee consulted the company’s four largest shareholders.
“I feel very saddened about it,” Diener said. “I always liked Wally Weisman personally. I think he is an intelligent and energetic individual.”
Series of Efforts
The cost-reduction plan was developed under Weisman but was approved and made effective by Diener. Some of the layoffs were effective Aug. 31, one day after Diener was named interim chief executive. Most of the jobs will be eliminated by the end of the year, but some are not scheduled to be phased out until May, 1989, said Mick Taylor, a spokesman for the company. Taylor said 20% to 25% of the layoffs will occur at AMI’s headquarters and the rest will be at the company’s eight regional offices.
The cost-reduction plan is the latest in a series of such efforts that began in 1986, when the company reported a loss of $97.3 million. The move also stems partly from AMI’s agreement to sell 37 of its 85 hospitals in the United States to employees through an employee stock ownership plan, or ESOP. In all, AMI’s staff will be reduced by 600 employees--300 will transfer to the ESOP company and another 300 will be laid off. Company officials have said that AMI’s personnel needs would decrease when the ESOP is created but had provided no specific numbers until Tuesday.
The ESOP was to be established by Sept. 1, according to projections made by the company in May. However, Diener said Tuesday that he now expects the $910-million deal to close Sept. 30. He said the spinoff of the 37 hospitals was delayed partly because about $125 million in debt securities had not been sold as quickly as expected. Bankers Trust had been assigned to sell the subordinated debentures, but AMI recently named the investment firm First Boston to sell them, Diener said.
The delays in the establishment of an ESOP company was one of a number of factors prompting Diener and 12 other board members to concur with the AMI’s four largest stockholders, who had called for Weisman’s resignation, Diener said. Board members and the Big Four stockholders also wanted Weisman to quickly establish joint venture arrangements with doctors--for example, selling them equity stakes in AMI hospitals--to give them incentives to practice at those facilities.
Will Get Board Seats
One of the Big Four investors--M. Lee Pearce, a Miami doctor--had warned the AMI board that he would nominate an alternate slate of directors at the next shareholders meeting if Weisman were not removed as chairman. Pearce began to call for Weisman’s resignation in July after Weisman rejected a proposal for giving each of the Big Four a seat on the board, according to SEC documents.
The Big Four shareholders will be given representation on the board, Diener said Tuesday. A committee of AMI directors will recommend who and how many Big Four designees will sit on the board, but they will get no more than four seats, Diener said.
Diener also said AMI’s board withdrew a “tentative” vote of confidence for Weisman after conferring with Big Four investors Aug. 26. The directors sought the advice of the Big Four because Weisman had allowed analysts hired by those shareholders to study AMI’s financial situation, Diener said.
“There’s no question their input was influential,” Diener said of the Big Four.
