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Biotech / Medical : ROTC:Rotech medical
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To: JohnSK who wrote (116)8/4/1997 3:05:00 AM
From: JohnSK   of 161
 
Hello. Is anybody out there? Or is everyone waiting to get their proxy material so they can see what it has to say? Or is this whole merger a done deal, and nobody cares anymore?

I read through the bill (H.R. 2015) they sent to the president containing the Medicare cuts. If I understood it correctly, oxygen reimbursements will be reduced 25% in 1998, and 30% (from 1997 levels) in 1999 and after. This is right in the middle of the 20% to 40% range cited in the 7/4/97 Value Line writeup on ROTC.

I read through some of the analyst's reports on IHS (sent to me courtesy of IHS IR). The most recent (6/30/97) and most positive (target price of $48 in 9 to 12 months) was from Smith Barney. Interestingly, if my notes are correct from the merger conference call, Smith Barney is the investment banker representing ROTC in the merger.

Most of the reports were from earlier in the year and projected target prices up to about $39 for the next 12 months. IHS reached this level before the merger announcement.

I see in this morning's WSJ where IHS is going to buy two more companies, Community Care of America (assuming another $62 million in debt), and Arcadia Services. It doesn't look like the balance sheet is going to stay improved from the ROTC merger for very long.

IHS is also planning to amortize ROTC's goodwill over a much longer period than ROTC was (35-40 years vs. 20 years). This has the effect of making earnings look better, and the balance sheet look worse. I guess in this earnings driven market, that is the way to do it.

I'm still looking for reasons why this merger is a good deal for ROTC shareholders.

Did Value Line have anything to say about this proposed merger in last couple of weeks?

John
(long ROTC)
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