Comprehensive Care Corp.’s Merger Is Off

Comprehensive Care Corp. of Irvine announced Friday that a crucial merger has fallen apart, pushing the nation’s largest alcohol and drug treatment center one step closer to filing for bankruptcy protection from creditors.

First Hospital Corp. of Norfolk, Va. withdrew from the merger--approved by shareholders last month--after one of its bankers refused to provide financing for the deal because of Comp Care’s deteriorating condition.

On Wednesday Comp Care posted a $4.7-million loss for the first quarter ended Aug. 31, news that caused the company’s stock to plunge 57% to $3.625 from $8.375. The company’s battered stock, which recovered slightly Thursday, fell 87.5 cents on Friday to $3.875.

Marilyn MacNiven-Young, vice president and general counsel of Comp Care, said the company is weighing several options, including selling assets or searching for another merger partner. She said filing for Chapter 11 bankruptcy protection is not currently under consideration.

Termination of the merger agreement “leaves Comp Care in a very precarious position,” said Margo Vignola, analyst with Salomon Bros., the New York investment banker. “If the banks decide to speed up their credit demands, it could dump them into Chapter 11. They need to find a solution posthaste.”

Comp Care’s announcement Friday did not contain any indication that the beleaguered company, which employs about 4,500 people, has found a way to repay the $23 million in debt that was due Oct. 18.

“This was a company that was having its problems a year ago but was viable. If you breathed bankruptcy a year ago, people would have laughed,” said Vignola. “Not now. They blew it.”

Some analysts speculated that First Hospital might try to buy Comp Care anyway, albeit at a much lower price than the recent offer of $3 a share in cash plus notes and shares of First Hospital stock.