AMI Bid Includes Employee Stock Plan
A New Jersey consultant joined the bidding contest for American Medical International, proposing to create an employee stock ownership plan to buy the hospital management company for about $2 billion, AMI said Thursday.
Beverly Hills-based AMI had no immediate reaction to the proposal, which was made by Brian M. Freeman Enterprises Inc. of Roseland, N.J. The company said Freeman offered $27 a share--$23 in cash and $4 in new preferred stock--topping a previous $24-a-share bid from an investor group.
AMI on Thursday also--for the first time--set a deadline of June 29 for accepting additional bids for the company.
The Freeman Enterprises proposal is the third bid made public by AMI, and many industry analysts greeted it with skepticism.
“I don’t see how anyone can take this seriously,” said Seth Shaw, an analyst at Prudential Bache Securities. “Where is his management team? Where is his financing?”
Freeman, who has served as a consultant for unions at Eastern and Northwest airlines, refused to comment on his proposal.
Bid Conditioned on Financing
If Freeman were able to transform AMI into a private company through an ESOP, he would have pulled off one of the largest such deals ever. Freeman’s bid is conditional on obtaining financing, according to AMI. Some industry analysts said Freeman would be unable to attract the financial backing to buy AMI, which owns 79 hospitals worldwide and employs about 40,000.
Typically, an ESOP must borrow heavily to purchase the outstanding stock of a large company, and the debt is repaid over years from the company’s profits. But AMI already has $1.8 billion in long-term debt and most banks would not want to lend a large additional amount to such a firm, some analysts said.
ESOPs have previously been used to make big purchases. For example, Avis Inc. was sold to its employees through an ESOP for $1.75 billion in 1987. However, Freeman would be arranging a $2-billion ESOP for a company sought by other firms--a deal that has never been done, said Joseph Bartlett, a New York University law professor who studies ESOPs and corporate takeovers.
“I would be fascinated to see the terms of this guy’s financing,” said Bartlett, a former undersecretary of commerce, “because it would be the first deal of this size in a competitive situation.”
Freeman has some experience developing employee buyout plans. He was financial adviser to a coalition of railway unions and management at Southern Pacific Transportation Corp. in 1987 when they tried--but failed--to buy their company from its holding company, Santa Fe Southern Pacific Corp.
Pearce Bid Amended
The Freeman proposal was referred to a committee of AMI directors formed to study bids. The Freeman proposal comes on the heels of an amended offer from an investor group led by Dr. M. Lee Pearce, an AMI director and major shareholder. That group last week disclosed how it would finance a $1.8-billion acquisition, including commitments from a New York-based takeover specialist and two big investment banks. The group’s bid consisted of $21 a share in cash and an additional $3 per share in preferred stock or notes. AMI did not respond immediately to the amended offer.
Before the Pearce bid was announced, AMI stock had been trading for $14 to $18 per share. The directors 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.
In addition to the Pearce bid, the committee has been considering a separate restructuring plan submitted by the New York-based investment firm of First Boston, sources said. That plan is designed to increase share prices to $25 to $29 per share, including a special cash dividend. Executives at First Boston would not comment immediately.
The restructuring plan and the Freeman offer are not likely options for AMI, according to Rae Alperstein, an analyst at the Los Angeles investment firm of Bateman Eichler, Hill Richards. Barring new bids, Alperstein speculated that AMI will opt for the Pearce bid. Other parties who have expressed interest in possibly making a bid have been allowed to review AMI’s financial records, Alperstein said.
“I don’t think an ESOP is out of the question,” Alperstein said. “It wasn’t a strong bid because there was no mention of financial backers.”
Todd Richter, an analyst at Dean Witter Reynolds, scoffed at the ESOP proposal.
“This requires massive bank involvement and intricate negotiations,” he said. “There’s no way this will win out.”
