Investors Bidding for AMI Backed by Buyout Specialist
A partnership making a $1.8-billion bid for American Medical International has disclosed how it plans to finance the deal, outlining the cash portion of the bid and revealing commitments from a New York-based takeover specialist and two big investment banks.
The announcement ends speculation over whether a group led by Dr. M. Lee Pearce--an AMI director and a major shareholder in the Beverly Hills-based hospital management firm--could attract the financial clout needed to complete a deal. On March 23, the group had offered $24 per share but had not indicated how much would be paid in cash.
The new financial backing “adds more credibility to the offer,” said Kenneth Abramowitz, a health care analyst at the Sanford C. Bernstein & Co. investment firm in New York.
In a document filed Friday with the Securities and Exchange Commission, the partners outlined the terms of their bid, which includes $21 a share in cash and an additional $3 per share in preferred stock or notes. The group said the offer would stand until 5 p.m. EDT June 15.
The document also revealed that the group has a new equity partner, Clayton & Dubilier Inc., a New York investment firm specializing in leveraged buyouts. According to the filing, Clayton & Dubilier would invest up to $200 million in the deal and Pearce would provide another $50 million in equity.
The investment stake of the rest of Pearce’s takeover group--two partners at Shamrock Investments Acquisition Group--would be determined later. Shamrock Investments is unrelated to the Roy E. Disney family’s Shamrock Holdings.
Other financing would be provided by Drexel Burnham Lambert, which would extend a short-term “bridge loan” of $875 million. Also, Drexel and Kidder, Peabody & Co., the other investment bank, would raise $800 million through the sale of high-yield “junk bonds.”
The newest equity partner in the proposed venture, Clayton & Dubilier, has purchased 15 firms with combined sales of $7 billion since its inception in 1978. Among its recent acquisitions are Uniroyal Goodrich Tire Co. and Borg-Warner Industrial Products Inc.
Martin H. Dubilier, chairman of Clayton & Dubilier, said his firm is interested in AMI and its new chief executive, Richard Gilleland, because he believes that the hospital chain’s profits can be improved.
“We’re a firm that likes to find under-performing companies and make them better,” Dubilier said. “We wouldn’t run this company. We would try to help Dick (Gilleland) run it better.”
Gilleland was hired as chairman and chief executive in January to boost AMI’s financial fortunes. AMI posted earnings of $115.3 million on sales of $3.1 billion in 1988.
Plans to Sell Assets
Another partner in the acquisition group--Charles P. Reilly, managing general partner of Shamrock Investments--said the group would probably sell some of AMI’s assets if the acquisition is successful. Reilly also noted that the group might be willing to raise its offer if AMI’s board agreed to certain conditions.
“This reflects our desire to come to a quick agreement with the board,” he said.
AMI did not respond immediately to the amended offer. A committee of AMI board members has been considering the Pearce bid as well as a separate restructuring plan to increase share prices to $25 to $29 per share, including a special cash dividend. Before the Pearce bid was announced, AMI stock had been trading for $14 to $18 per share. The committee, under pressure from key shareholders to choose between the competing proposals, announced April 19 that it would seek other offers before making a decision.
The stock closed Monday at $21.75, up 25 cents, in composite trading on the New York Stock Exchange.
Bid Gains Credibility
Now that Pearce has revealed financial backing, AMI is likely to opt for the buyout proposal unless a new suitor presents a better bid, some industry analysts said. For example, Rae Alperstein of the Bateman Eichler, Hill Richards investment firm in Los Angeles noted that some analysts doubted Pearce’s ability to find the needed financial backing.
“Those concerns will now dissipate,” she said. “In my view, a restructuring doesn’t offer the security--the sureness of a payoff--that a leveraged buyout offers.”
John Hindelong, an analyst at Donaldson, Lufkin & Jenrette in New York, said the restructuring offer is now less attractive because the Pearce bid is more concrete.
“In the face of no other offers,” he said, “they can accept this (Pearce) bid, or face the wrath of shareholders.”
AMI AT A GLANCE Beverly Hills-based hospital management chain owns 79 acute-care and psychiatric hospitals in 15 states and various foreign countries. It also provides management services on a fee basis.
Year ended Dec. 31 1988 1987 1986 Sales (billions) $3.11 $2.88 $2.69 Net income (loss) (millions) 115.3 105.4 (97.3)
Assets $3.53 billion
Employees 50,000
Shares outstanding 68.5 million
12-month price range $14.25-$22.125
Monday close (NYSE) $21.75, up 25 cents
Source: annual report, Standard & Poor’s
