MedPartners, PhyCor Scrap Shaky Merger
For MedPartners Inc. and PhyCor Inc., it was an $8-billion engagement that got off to a rocky start. On Wednesday it crumbled completely.
The two companies scrapped a merger that would have created a national giant in the business of managing physician practices--a deal touted by the two firms as an important step in leveling the playing field between HMOs and doctors.
“It became apparent that the differences [between] the two companies were significant,” said Larry House, MedPartners’ chairman and chief executive. In discussions over several months, he said, it became obvious that the firms’ “business philosophies and practices” were incompatible.
MedPartners, based in Birmingham, Ala., is one of the largest physician group operators in Southern California. But it was likely more than philosophical differences that spoiled what would have been the first mega-deal in the fast-growing business of physician practice management.
Wall Street gave a quick thumbs-down. Some investors complained that PhyCor, based in Nashville, had made an uncharacteristically risky move in seeking to buy the much-larger MedPartners. Others worried about antitrust issues and whether the two companies could successfully merge physician groups spread across 50 states.
PhyCor’s shares, which dropped 23% on the first trading day after the announcement, have since recouped most of that loss. But MedPartners’ stock, which shot up to $31 the day the deal was disclosed, have plummeted since, widening the spread between the merger terms and the two firms’ actual share prices.
On Wednesday, MedPartners’ shares fell 77 cents to $18.17 on the New York Stock Exchange. PhyCor rose 13 cents to $26.50 on Nasdaq. The announcement of the canceled deal came after the market’s close.
Joseph C. Hutts, PhyCor’s chairman and chief executive, blamed “significant operational and strategic differences. . . . Each company takes a much different approach to business in a number of key areas, including information system, development and operations.”
John Edelston, a Woodland Hills managed-care consultant, speculated that PhyCor management may have realized that MedPartners’ itself is experiencing higher-than-expected costs from merging medical groups it has acquired in the past.
MedPartners said Wednesday it expects restructuring charges of $115 million for the fourth quarter--largely acquisition-related costs--and projected an operating loss of 20-25 cents per share.
