Comp Care Says It Will Be Bought for $130 Million : Headquarters Will Move From Irvine to Virginia

Comprehensive Care Corp., the nation’s largest provider of hospital drug and alcohol treatment services, said Wednesday that it will be acquired for about $130 million by a smaller company that plans to move Comp Care’s headquarters from Orange County to Virginia.

The combination, subject to approval of shareholders and regulators, would make privately held First Hospital Corp. of Norfolk, Va., the majority owner in a new public company to be called FHC Comp Care.

Based in Irvine, Comp Care operates its CareUnit alcohol and drug dependency programs under contract at 170 hospitals across the country. The firm also owns 23 hospitals in 10 states, including three Orange County facilities in Brea, Orange and Costa Mesa.

Founded 6 years ago, First Hospital operates 10 hospitals, most of them in the East. The firm reported revenue of $86.1 million and net income of $7 million for the fiscal year ended June 30, 1988.

Comp Care, which reported revenue of $211.2 million last year, said its 200-employee headquarters operation will be moved to Norfolk. Chairman B. Lee Karns said he will not become an officer in the new operation, but will be a director of the firm.

Cut Into Business

Analysts said major changes have long been needed for Comp Care, which has suffered financially as shorter stays by patients and increased competition have cut into business. The firm’s earnings fell from $17.2 million in 1985 to $9 million for the fiscal year ended May 31, 1988.

The company’s debt has increased dramatically in recent years, reflecting an aggressive expansion program involving construction of 14 hospitals from 1982 through 1987. Cash reserves have declined, in part because Comp Care spent $60 million to buy back 5 million shares of its stock, which has lost more than half its value in the past four years.

First Hospital Vice President Robert Viso said his firm has no plans to close any of Comp Care’s hospitals. Comp Care’s Karns said he expects key employees to join the new firm, although none has been promised a job in the new company.

Although First Hospital is smaller than Comp Care, it clearly will dominate the combined operation.

The new company’s 7-member board of directors will include five members designated by First Hospital and only two from Comprehensive Care, one of whom will be Karns. First Hospital Chairman Dr. Ronald I. Dozoretz will be chairman of the new company.

The merger calls for First Hospital, which is owned primarily by Dozoretz, to receive a 63% stake in the new company, with Comp Care shareholders getting the rest.

Comp Care shareholders will receive $5 in cash and a bond valued at $2.50 for each share of stock they own. Comp Care stock closed Wednesday at $10.75 per share, down 37.5 cents for the day on the New York Stock Exchange.

Karns described the terms of the merger as generous. He said that the company’s financial adviser, the investment firm of Prudential-Bache, characterized the offer a fair one for shareholders.

Alternatives Evaluated

In February, the company said it had appointed a special committee of directors to evaluate alternatives, including restructuring or selling part of the firm. Karns said discussions were held with other companies, but he declined to reveal details.

Dozoretz, a psychiatrist, expressed confidence in his ability to improve Comp Care’s financial performance. “We’re extremely good in turning around operations . . . in creating efficiencies,” he said.

John Hindelong, a health care analyst at Donaldson Lufkin & Jenrette, agreed. “Dr. Dozoretz is very capable of tightening controls and increasing patient count,” he said. “FHC’s (patient count) is probably higher than Comp Care’s.”

COMPARING THE TWO COMPANIES

Comprehensive First Hospital Care Corp. Corp. Headquarters Irvine Norfolk, Va. Employees 4,500 7,000 Business 23 chemical 10 psychiatric dependency hospitals treatment hospitals, and contract services in 170 other hospitals Revenue for most $211.2 million $86.1 million recent year Earnings for $9 million $7 million most recent year 52-week stock $13-$7.50 NA price range Tuesday’s closing $10.75, NA stock price off 37.5 cents Common shares 10.1 million NA outstanding Market value of $109 million NA common stock Chief executive B. Lee Karns Ronald I. Dozoretz