DaVita May Kill Tender Offer
DaVita Inc. shares sank Friday after the Torrance-based operator of dialysis centers said it may cancel a tender offer for 24% of its stock.
The company’s shares closed at $20.40, down $1.95, on the New York Stock Exchange. The tender offer, which expires May 17, is priced from $22 to $26 a share.
DaVita had been trading in the $25 range until Wednesday, when it disclosed it received a subpoena from the Department of Health and Human Services. The company said the subpoena, from the department’s Philadelphia office, demanded financial and billing records back to May 1996.
The firm’s chief executive, Kent J. Thiry, said Friday in a conference call with analysts, that the subpoena was “very broad” and “asks for a wide range of documents” pertaining to pharmaceuticals, diagnostic work, laboratory testing and DaVita’s financial relationships with drug companies and physicians.
Thiry said the subpoena was “significant bad news.”
“The government will probably be very aggressive, and dealing with it will be very time-consuming and expensive for us,” he said.
The investigation could take as long as four years and cost the company $6 million to $12 million a year, he added.
“Will they allege we should have done something differently? It is hard to imagine otherwise,” Thiry said. “Will they find a pattern of wrongdoing? No.”
Thiry said the subpoena probably was related to a February 2001 request for documents from the U.S. attorney’s office in Philadelphia. That office is investigating Medicare billings for services not performed and incentive payments to doctors for patient referrals.
Thiry, who joined the company in October 1999, said DaVita has been cooperating with investigators and will continue to do so.
The firm said it was weighing its options on the tender offer. It could complete the offer, terminate it or reduce the offering price range.
DaVita operates 495 centers in 32 states, including 81 centers in California. Medicare accounts for 52% of its dialysis revenue.
DaVita’s rivals also have come under scrutiny. Gambro, a Swedish company, said last year that it received a subpoena from the Justice Department for “very broad information.”
Another competitor, Fresenius, paid $486 million in 2000 to settle government charges that its National Medical Care unit paid doctors kickbacks and overbilled Medicare before the German company bought the business from W.R. Grace & Co. in 1996.
