Chairman, 2 Others Quit in Major Apria Shake-Up
In a major management shake-up Monday, Apria Healthcare Group Inc.’s chairman and two other executives resigned as the home health care company said it will have bigger-than-expected losses.
The departure of Jeremy M. Jones, 56, as chairman and chief executive also could signal that efforts to sell the Costa Mesa company are dead and that new managers will try instead to revive what is one of the nation’s largest home health care firms.
Orange County developer George L. Argyros was named chairman. Argyros, 60, an outside director, is Apria’s largest individual shareholder.
He said the company will start searching for a new chief executive and that its president, Lawrence M. Higby, 52, is one of the candidates. Higby was named interim chief executive.
Also departing are Lawrence H. Smallen, 48, the chief financial officer, and Jerome J. Lyden, 41, senior vice president of sales.
Industry sources said that Medicare cutbacks next year--a big source of revenue for Apria and a host of health care companies--and low hikes in premiums will likely make many managed care firms less attractive as investments.
“It’s clear that Apria as a company is not going away,” said Sheryl R. Skolnick, an analyst at BancAmerica Robertson Stephens brokerage in New York. “But as an investment, it’s going to be unattractive as the company gets its act together. The company is at least a year away from turning the corner.”
Apria’s sale is still possible, but much less so than before, one insider said.
Argyros said the company will wind up talks by the end of the month with New York investment banker Goldman, Sachs & Co., which it hired last spring to find a merger partner or other financial help.
At least two potential buyers--smaller Coram Healthcare Corp. in Denver and a group put together by former Apria executive Timothy M. Aitken--are still talking with Goldman Sachs, Argyros said.
Apria’s board said two weeks ago that a $918-million deal with Aitken’s group would not be in the company’s best interests.
Apria said that its red ink for the fourth quarter will be much greater than anticipated, pushing the 1997 loss to at least $113.8 million, or $2.20 a share, and as high as $126.8 million, or $2.40 a share. An earlier estimate showed the company posting an earnings-per-share profit of 23 cents in the fourth quarter.
Higby said the losses come mainly from charges and write-downs in changing over its computer hardware and software systems to handle the $1.2 billion in sales generated by the two Orange County companies that merged to form Apria in 1995. Neither of the companies--Abbey Healthcare Group Inc. and Homedco Group Inc.--had systems in place that were capable of managing a joint operation.
Other charges and write-downs involve staff reductions, severance pay, office closures and goodwill.
Argyros and Higby, who joined Apria three months ago, said earnings for the current year will be “significantly below” Wall Street estimates of 81 cents to 89 cents a share.
The news is likely to send the company’s sagging stock price spiraling down when the market reopens today after the three-day holiday weekend.
“I think it’s going to be a big down day for the stock,” Skolnick said.
Apria closed Friday at $11.50 a share, slightly ahead of its 12-month low of $10.88 two days earlier. The price was as high as $20.88 last March.
Apria hasn’t been able to reap the benefits from the merger. It has been beset by computer breakdowns in its collections systems, unprofitable business ventures and rapid changes in the industry. Besides cutting some staff and costs, it has fixed its computer system temporarily.
It plans to change the structure of its board--now four members each from Abbey and Homedco--to an odd-number board with perhaps a new member who doesn’t come from either Abbey or Homedco. It also is realigning its field organization to improve revenue management and operating efficiency, eliminating a layer of management.
“With all the turmoil at the company, I don’t think it is really focused at cutting costs in its main home respiratory therapy business,” which the company needs to do to offset a 25% cut in Medicare payments this year alone, Skolnick said. “They know what they want to do, but they haven’t done it.”
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Earnings Off at Apria
Apria Healthcare Group announced a management shake-up and revealed that fourth-quarter earnings will be significantly less than analysts’ estimates. Details on the company, its earnings per share and stock price:
Headquarters: Costa Mesa
Chairman: George L. Argyros
President/interim CEO: Lawrence M. Higby
Business: Home health care products and services
Formed: 1995 with merger of Abbey Healthcare Group and Homedco Group
Employees: 8,255
Status: Public
Exchange: NYSE
Earnings Per Share
1997
4th quarter: 0.23*
* Analysts’ estimate
Stock In a Slump
(monthly closing prices)
Jan. 16, 1998: $11.50
Source: Bloomberg News
