Investor to Net $119 Million by Reducing Stake in Apria
After guiding a turnaround at Apria Healthcare Group Inc., its biggest shareholder will take home a big chunk of money--a gain of about $119 million--by selling more than three-quarters of its holdings in the Costa Mesa home-care company.
Relational Investors, an activist institutional investor that took charge of the nation’s largest home health-care company 2 1/2 years ago, said Friday that it will sell 8.5 million shares, or about 16% of the company’s stock. The investor owns 20%.
“When we came in, this company had been a poster child for bad corporate governance,” said Relational’s Ralph V. Whitworth, who has been Apria’s chairman. “Now, its shares are up materially, and Apria has had consistent sales and earnings growth for almost three years.”
Though Wall Street drove Apria’s stock down $1.25 on Friday to close at $26 on the New York Stock Exchange, the price has more than doubled in the last year.
At Friday’s closing price, the value of the stock for sale would be $221 million. Whitworth said his firm bought those shares in recent years at an average price of $12 a share, or a total of $102 million.
Whitworth said he would remain chairman of Apria and that fellow Relational principal David H. Batchelder also will remain on the board.
The San Diego investment firm began buying Apria stock in 1997 and soon threatened a proxy battle unless Relational got two board seats. Apria’s stock was stagnant and its loss that year was $273 million.
The board was plagued with infighting and gridlock in making even minor personnel decisions, because the two Orange County companies that merged in 1995 to form Apria had evenly split the directors seats. Billings became entangled, and collections became a major headache.
Under Whitworth’s prodding, Apria replaced much of the board and fired 80 employees to cut costs. He also recruited Philip L. Carter, a former retail executive involved in turnaround efforts, to be Apria’s chief executive.
Apria has since cut the time it takes to collect payments from customers to 50 days--half the time it previously took.
It also has posted 10 consecutive profitable quarters, partly by focusing on the respiratory therapy business, which gives it a higher profit margin. By the end of last year, long-term debt had been cut to $337.8 million, a 37% drop from the end of 1997.
Whitworth said Apria plans to expand through acquisitions and internal growth.
After the sale, Relational will have 2.4 million shares, or 4.5% of the company. That is more in line with its typical 3% to 10% stake in companies.
John Sico, an analyst at Standard & Poor’s, said Relational has played an important role in Apria’s strong performance by bringing in key executives. Apria should continue to do well, even if Relational reduces its role, he said.
“The management [is] in place and the company’s running well,” Sico said. In March, S&P; boosted Apria’s corporate credit rating to BB from BB-.
Relational Investors was formed in 1995 by Whitworth and Batchelder with a $200-million investment from the California Public Employees’ Retirement System. The pair had worked for corporate raider T. Boone Pickens in the 1980s.
Relational, with nearly $1 billion under management, typically takes stakes in under-performing companies and takes an active role in trying to get them back on track. It has made 36 investments in such companies as ICN Pharmaceuticals Inc. in Costa Mesa, Mattel Inc. in El Segundo and Waste Management Inc. in Houston.
Whitworth is a former chairman of Waste Management and continues to serve on its board as well as on the boards of Mattel and other companies.
Batchelder resigned from the ICN board last year but has since said he wants his seat back, an option open to him as part of an agreement with ICN. The company has thwarted his effort. Relational, which once had a 2% stake in the drug maker, now has about 100 shares.
