CompCare Panel of Directors to Consider Restructuring, Selling Part or All of Firm

Comprehensive Care Corp. of Irvine said Thursday that it has appointed a special committee of directors to evaluate strategic alternatives, including a possible financial restructuring, asset sale or acquisition by another company.

CompCare, which operates alcohol and drug abuse treatment programs in 193 hospitals nationwide, has experienced declining earnings in recent years. For the fiscal year ended May 31, 1988, profits fell 26% to $9 million on revenue of $212 million.

In a statement, the company said undervaluation of its stock played a role in the decision by its board to chart a new business strategy. CompCare stock closed Thursday at $11.75 a share, up 50 cents, on the New York Stock Exchange.

B. Lee Karns, CompCare’s chairman and chief executive, said the 17-year-old company has reached “a critical point” in its growth.

“We are starting with a blank piece of paper,” he said. “We retained Prudential Bache to decide what would be in the best interest of our shareholders and employees.”

Karns said he did not know if the company would sell any of its three Orange County facilities: Brea Psychiatric, Care Unit of Orange or Starting Point in Costa Mesa. Nationwide, he said, the company owns 23 hospitals and provides services under contract in 170 others.

Karns said CompCare’s earnings have been depressed for 3 years by a rapid expansion program and by repurchases of CompCare stock. In the last 2 years, he said, the company has added 7 new hospitals and spent $60 million to buy back 5 million shares of stock, leaving it with about 11 million shares outstanding.

For the first 6 months of the current fiscal year, the company posted earnings of $4.7 million, compared to $4.6 million for the same period the year before. Revenue was $117.3 million, up 17% from $100 million. New hospitals that opened accounted for the added revenue, the company said, but low occupancy rates kept them from operating at a profit.

Jeff Kilpatrick, an analyst with Newport Securities in Newport Beach, said CompCare “has lost a lot of momentum and probably hasn’t had a lot of research analysts’ interest. It has become sort of a staid, stagnant company.”

At the same time, Kilpatrick said, substance abuse programs have become a hotly competitive business.