Stock Takes Dive as Comp Care Loses $4.7 Million : Merger: The quarterly loss and the market tailspin may doom the planned consolidation with First Hospital, analysts say.
Comprehensive Care, the nation’s largest alcohol- and drug-treatment company, reported a $4.7-million loss Wednesday for its fiscal first quarter, sending the beleaguered company’s stock price into a tailspin and endangering a critical merger.
The company also revealed in a filing with the Securities and Exchange Commission that it cannot stay in business unless it completes the merger with First Hospital Corp. of Norfolk, Va., or obtains an extension on its sizable debt obligations.
“The continuation of (Comp Care) is dependent upon either the completion of a reorganization or resolution of short-term operating and liquidity problems,” the company said in the SEC filing.
Comp Care’s announcement sent its stock falling 57% from $8.375 to just $3.625 during extremely heavy trading on the New York Stock Exchange. Some 1.17 million shares of Comp Care’s 10.2 million shares changed hands.
“I guess time will tell whether the people who took their action today were panicky or emotional . . . or smart,” said Robert C. Viso Jr., chief financial officer of First Hospital Corp. in Norfolk, Va.”
In its financial report, the company said revenue during the first quarter ended Aug. 31 fell 17% from $53 million to $44 million. Its $4.7-million loss contrasts with a $1.6-million profit in the same period a year earlier.
The company also said it does not have enough cash to meet its debt obligations. And stock market analysts said the planned merger with First Hospital now is uncertain because of Comp Care’s deteriorating financial condition.
Because the merger with First Hospital has hit some snags, Comp Care--which is best known for its CareUnit treatment facilities--is desperately trying to negotiate an extension of its $23 million in bank debt, which was due Oct. 18.
“The deal with First Hospital is dead in the eyes of most arbitragers,” said Margo Vignola, analyst with Salomon Bros., the New York investment banker. “If the deal doesn’t happen and the banks get nasty, we’re talking about a very precarious situation.”
Comp Care has scheduled a board of directors meeting Tuesday in the event the merger is canceled. The company has several options, including trying to take itself private, agreeing to a takeover at fire-sale prices or filing for Chapter 11 bankruptcy protection from creditors, according to analysts.
But First Hospital officials said Wednesday that they plan to go ahead with the takeover. Today, a key First Hospital financier is expected to decide whether it will support the merger.
“We have every intention of trying to merge with them,” said Viso. “We are committed to the transaction.”
If the deal does go through, some analysts said it will be at a lower price than what was recently negotiated--$3 a share in cash plus notes and shares of First Hospital stock.
Comp Care officials refused all comment, and Viso would not speculate about his company’s future plans.
Founded in 1969, Comp Care has suffered recently as fewer and fewer people use its facilities because of increased competition and changing attitudes about alcohol and drug use. Meanwhile, those people who do check in to Comp Care facilities aren’t staying as long as they once did, largely because of stricter insurance requirements.
The average occupancy rate for the company’s free-standing facilities has continued to plummet in recent months. For instance, the occupancy rate was 62% during the first quarter of fiscal 1989 but was only 46% in the same period this year. And since then, it has dropped to 38%.
Comp Care was once the industry’s trend-setter and attracted such noteworthy patients as former Los Angeles Dodger pitcher Steve Howe.
Several analysts said Wednesday that some members of Comp Care’s management appear to have given up on the company. Chairman B. Lee Karns is rarely seen in the office nowadays.
“There seems like there is lack of pressure on making things work right,” said Jeffrey Kilpatrick, president of Newport Securities Corp. in Costa Mesa.
“The management has let the company drift during this period,” said Vignola. “And that’s a kind word-- drift . I don’t think they have been minding the store.”
COMPREHENSIVE CARE CORP STOCK PRICES
Comprehensive Care, the nation’s largest alcohol and drug treatment company, reported a $4.7-million fiscal first quarter loss, sending the Irvine company’s stock price down on Wednesday from $8.375 to just $3.625 and endangering a critical merger with First Hospital Corp. April 7, 1989 closing price: $12.50 Oct. 25, 1989 closing price: $3.625
