Apria Claims Littlejohn Has Broken Pact
Apria Healthcare Group Inc., in the midst of a major restructuring, said it has filed a lawsuit against an investor group for allegedly reneging on a deal to pump money into the troubled home health care company.
Apria said it has become evident that investment fund Joseph Littlejohn & Levy is unwilling to proceed with the planned investment without “significant revisions” in the deal signed last month.
In a complaint filed Tuesday in Superior Court in Santa Ana, Apria seeks unspecified damages for what it contends is a breach of contract by New York-based Littlejohn and its partner in the deal, an affiliate of Canadian Imperial Bank of Commerce.
Under the proposed transaction, the group was to have paid $172.3 million for 12.3 million shares of Apria common stock and warrants to purchase an additional 5 million shares, giving it a 26% stake in the company. Apria had planned to use the cash to repurchase up to 17.3 million shares of its common stock.
The deal had ended months of speculation over the future of the nation’s largest home health care concern, which was created by a 1995 merger of two industry giants, Abbey Healthcare Group Inc. and Homedco Group Inc. Since the merger, Apria has been beset by computer breakdowns in its collections systems, unprofitable business ventures and rapid changes in the industry. A management shake-up was announced in January.
Ralph V. Whitworth, an Apria director, maintained that the deal is not essential to the survival of Apria. “This company was not in financial distress,” he said. Now the company must decide whether to pursue a similar deal with another party, or go it alone and concentrate on putting together a new slate of top executives.
George L. Argyros, Apria’s chairman, said the company’s board is “extremely disappointed with Littlejohn’s conduct,” but it needed to “move aggressively to protect the interest of Apria shareholders.”
After the deal with Littlejohn was struck Feb. 3, the investment group said it wanted the terms revised because Apria’s financial results did not meet certain projections, the complaint states. Apria said the agreement did not include financial projections as a condition of the investment.
Littlejohn also contends that Apria didn’t disclose “material information” in connection with the agreement, according to the lawsuit. Apria disputes the claim.
Whitworth, who is principal of Relational Investors LLC, Apria’s largest shareholder, said that Littlejohn objected to the stock buyback plan, preferring instead that Apria keep the money in the company.
The stock repurchase, which would have allowed shareholders to sell out at a higher price than they could get on Wall Street, “was so fundamental to the plan that it was just unacceptable” to scrap it, he said.
“At the same time, they weren’t providing the focus we were expecting,” Whitworth said, to help identify a new management team and turn the company around.
“We are prepared to go forward, but it’s clear to us the other group isn’t. Therefore, we need to move on,” he said.
In trying to recover, the company has cut staff and costs. As part of the management shake-up in January, three executives resigned, including Jeremy Jones, chairman and chief executive. At the same time, Apria said it would report a bigger-than-expected fourth-quarter loss.
Following the management shake-up, Argyros, the Orange County developer and Apria’s largest individual shareholder, was named chairman. President and Chief Operating Officer Lawrence M. Higby has been serving as interim chief executive.
A board meeting is scheduled Tuesday to discuss Apria’s future. Argyros said the company would move quickly to appoint a permanent management team.
Apria disclosed the lawsuit after the stock market closed. The company’s shares closed Tuesday at $6.88, down 19 cents, in New York Stock Exchange trading.
