Comp Care Tentatively OKs Reduced Merger Bid

Comprehensive Care, the country’s largest provider of services for treating drug and alcohol problems, tentatively agreed Friday to accept a reduced merger bid from First Hospital Corp. and said that longtime chairman B. Lee Karns will step down upon the deal’s completion.

First Hospital, which is based in Norfolk, Va., early last week lowered the cash portion of its $130-million offer for Comp Care from $5 to $3 a share because of the Irvine-based company’s deteriorating financial condition. Analysts said the new bid was at least $20 million below the original offer, which was made in April.

On Friday, Comp Care announced it had negotiated a slightly better deal than that proposed last week. The cash portion remains at $3 but the amount of notes and shares of common stock to be paid was increased slightly.

“This isn’t anywhere near as good of a deal for shareholders as the original deal last April but it’s a deal,” said Margo Vignola, an analyst with the New York brokerage of Salomon Bros.

Karns Would Resign

If the merger is completed, Karns, 59, said he would resign, thereby ending his nearly 20-year reign at Comp Care. “I will not have a role in the new company. I will serve on the board of directors only,” he said in an interview Friday.

“I really think this is a golden opportunity for Comp Care to refocus and re-energize itself so it will be like it used to be,” Karns said.

Comp Care reported last week it lost $5.1 million in the fourth quarter ended May 31 and said it was no longer meeting some of the loan requirements on its $78 million in debt. Comp Care’s operations are operating on a negative cash flow basis, largely because of decreasing occupancy rates.

“The loan problems sparked concern that the financial health of this company was far more precarious than people thought,” Vignola said. “I had plenty of people who asked me if this was a Chapter 11 (bankruptcy) candidate.”

Comp Care’s stock closed up $0.625 to $8.375 in trading on the New York Stock Exchange on Friday.

Stockholders Meet Sept. 13

First Hospital--a psychiatric and substance-abuse treatment firm--and Comp Care will merge into a new company called FHC Comp Care if stockholders approve the transaction at a special meeting scheduled for Sept. 13.

The merger is not expected to result in a significant loss of jobs at Comp Care even though the new company will be headquartered in Virginia. Comp Care has about 4,000 employees nationwide, including about 600 in Orange County.

“There will not be any massive layoffs,” said Dr. Ronald Dozoretz, First Hospital’s chairman. “There will be some relocations.”

Dozoretz, 54, said Friday that his company intends to resolve Comp Care’s problems in part by expanding the treatment programs it offers.

“We think it has had some management problems,” Dozoretz said. “You need a broader menu to serve the different needs of the insurance company and the consumer.”

For instance, First Hospital provides outpatient and day-care services, two options Comp Care has at only some of its facilities.

Comp Care operates its CareUnit alcohol and drug dependency programs under contract at hospitals around the country. The firm also owns some of its own hospitals, among them facilities in Brea, Orange and Costa Mesa.