Abbey Healthcare, Homedco Merger Expected : Deal: Shareholders of both O.C. companies vote today. Approval would create the nation’s biggest provider of home health services.
Shareholders are expected today to approve a merger of two Orange County companies that will create the nation’s biggest provider of home health services.
Shareholders for both companies--Abbey Healthcare Group Inc. in Costa Mesa and Homedco Group Inc. in Fountain Valley--will vote in separate meetings that start at 10 a.m. Company officials say they will unveil the combined company’s new name after the vote.
Analysts say the new company is likely to be a mover and shaker in the rapidly consolidating health care industry.
Assuming shareholders approve the deal, the new company will have combined revenue this year of a little more than $1 billion and will claim a sizable chunk of the market for respiratory and intravenous equipment to treat patients at home.
Its broad geographic reach and product offerings should make it more attractive to big customers, including national health maintenance organizations, analysts said.
“Shareholders ought to be particularly excited that the combined entity will be truly the giant in the home care industry,” said Vivian Wohl, an analyst at Robertson Stephenson in San Francisco.
What’s more, analysts say, the new company should be able to cut costs by combining duplicate operations of the two companies.
Company executives expect they’ll save $40 million to $50 million a year by eliminating overlapping operations, once the merger proceeds. Much of the expected savings would come from cutting 120 to 130 service branches in the companies’ combined 475-branch network.
For awhile at least, the new company can look forward to reaping the advantages of sheer size. Last week, a merger that would have created the only industry contender of similar size hit a snag. Lincare Holdings Inc. of Clearwater, Fla., announced that its board of directors needed more time to review the company’s proposed acquisition by Denver-based Coram Healthcare Corp. Lincare also postponed a special shareholders’ meeting in July to consider the deal.
Meanwhile, the merged Homedco-Abbey company hopes to land several national contracts with health care insurers in the next six months, said Lawrence Smallen, the Homedco chief financial officer who has been named chief financial officer of the new company. At least one of those contracts would rival Homedco’s recently announced deal with Foundation Health, based in Rancho Cordova, he said.
Homedco will provide home health services to Foundation Health’s members in nine states, including California. The company expects revenue from the contract will range from $15 million to $20 million a year.
Of course, size isn’t everything. Analysts say the new company must take pains to maintain its level of service. Small providers locally and throughout the country will be hunting for opportunities to grab business as the Homedco and Abbey organizations sort out details of the merger.
For instance, a small privately held competitor, Saddleback Home Medical Equipment in Laguna Hills, recently outmaneuvered Homedco in Newport Beach.
Industry sources say Greater Newport Physicians, a group of staff physicians at Hoag Memorial Hospital Presbyterian, signed up last year with Saddleback after dropping Homedco over service issues. Homedco’s Smallen recently said the company lost the business because Saddleback bid aggressively, not because of service issues. Smallen said Homedco is trying to win back the business.
In over-the-counter trading Monday, Homedco shares closed at $56.87 1/2 a share, down $1.37 1/2, while Abbey closed at $39.75 a share, down 87 1/2 cents.
Terms of the deal itself reflect Homedco’s somewhat higher revenue base than Abbey’s. Homedco shareholders will wind up with about 55% of the new company.
Jeremy M. Jones, Homedco’s 53-year-old chairman and chief executive, will have the same titles in the new company and will receive a salary of $390,000. Abbey’s chairman and chief executive, Timothy M. Aitken, 50, will be vice chairman and president of the new firm, receiving a salary of $370,000. Abbey also will buy out Aitken’s executive contract, paying him $2.5 million.
Under the merger, Homedco shareholders will receive two shares of the new company, plus the right to buy preferred stock, in exchange for one share of Homedco stock. Abbey shareholders will receive 1.4 shares of stock in the new company, plus the right to buy preferred stock, for each share of Abbey stock.
Abbey shareholders will gather at the company’s corporate headquarters at 3560 Hyland Ave., while Homedco’s shareholders will meet at the Four Seasons Hotel, 690 Newport Center Drive, Newport Beach.
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Healthful Merger
A glance at Abbey Healthcare Group Inc. and Homedco Group Inc., two Orange County companies expected to merge. If the deal is approved, the newly formed company would be the nation’s largest provider of home health care services.
Abbey Healthcare Group Inc. * Founded: 1924 * Based: Costa Mesa * CEO/Chairman: Timothy M. Aitken * Employees: 3,800 * Branches: 235 * 1994 revenue: $439 million * 1994 earnings: $12.3 million
Homedco Group Inc. * Founded: 1987 * Based: Fountain Valley * CEO/Chairman: Jeremy M. Jones * Employees: 4,500 * Branches: 240 * 1994 revenue: $523 million * 1994 earnings: $29.8 million
Sources: Individual companies
