< MDM > From the Friday edition of the WallStreet Journal, Looks BAD for MDM ! Could be a nice rebound in store but It looks to me like their will be more movement down before up. IMO
WSJ did not paint a good picture at all. The NBR and CNN Money Line both mentioned MDM's problems. CNBC had a story on the company.
This company is getting LOTS of exposer and it all looks BAD, Short term. Could be a real nice one or two day short, before a Bounce starts.
With the asia problem, Us Market conditions, the fear of holding over a weekend, the companies BAD PRESS widely showen and covered all over the place, fear of Stockholder suits, more downgrading, this sucker has to drop!! IMO
THE WALL STREET JOURNAL
02:00 Technology & Health:
MedPartners Inc.'s Shares Plunge 45%
After Its Merger With PhyCor Unravels
Copyright (c) 1998, Dow Jones & Company, Inc.
By Anita Sharpe and George Anders
Staff Reporters of The Wall Street Journal
Concerns about MedPartners Inc.'s growth and financial health flared a day
after its merger with PhyCor Inc. unraveled, lopping off nearly half its
stock-market value.
The two large physician-management companies disclosed Wednesday that their
proposed $6.25 billion merger had collapsed because of business and cultural
differences. MedPartners at the same time said it would take $145 million in
fourth-quarter charges and possibly report a quarterly loss of as much as 25
cents a share from continuing operations. Moreover, the company lowered its
earnings forecast for all of 1998, saying it expects to earn about $1 a share
for the year instead of the former consensus analysts' estimate of about $1.40
a share.
Piper Jaffray analyst Brooks O'Neil said he lowered his MedPartners estimate
to 95 cents a share for 1998, but added, "the big question is, can they hit 95
cents."
MedPartners stock plunged 45%, or $8.171875 to close at $10 in New York
Stock Exchange composite trading.
While PhyCor and MedPartners refused to elaborate on reasons for their
breakup, people familiar with the talks said that PhyCor grew increasingly
nervous in recent weeks about the financial underpinnings of the transaction.
"We knew that they [MedPartners] had some stuff that they shouldn't have
bought," said one person in the PhyCor camp. "But I felt that PhyCor would be
able to get rid of some things and be left with the core business." As talks
progressed, he said, PhyCor began questioning how much of MedPartners it
wanted to own.
PhyCor also was uncomfortable with MedPartners' hefty debt load, people
familiar with the talks said. As of Sept. 30, MedPartners had more than $1
billion in long-term debt, while PhyCor had less than $150 million. Those
large borrowings have helped MedPartners grow rapidly, but they would leave
the combined company more vulnerable to an earnings slump if business
weakened.
In sum, Phycor "realized that the earnings basis for the deal wasn't there,"
said Thomas Hodapp, an analyst at BancAmerica Robertson Stephens. When the
deal was unveiled last October, PhyCor assured investors that per-share
earnings growth for the combined company would remain about 30% a year. People
close to both companies said there was an attempt within the past 10 days to
renegotiate the merger on different terms, but that an accord couldn't be
reached.
MedPartners, based in Birmingham, Ala., blamed its projected fourth-quarter
operating loss largely on unexpected costs associated with its Western
operations. Specifically, the company said the costs were related to "higher
than expected utilization and additions to medical-claim reserves."
During the past two months, as PhyCor, Nashville, Tenn., reviewed
MedPartners' operations more closely, several concerns surfaced, according to
people familiar with the review. MedPartners' big California group practices,
which had been seen as the target company's best assets, turned out to be
facing much greater profit pressure than expected.
Questions also arose about whether MedPartners had made sufficient
provisions for medical claims that haven't yet been filed by patients, doctors
and hospitals. Such claims can be difficult to estimate, and in recent months,
several large health-maintenance organizations have surprised Wall Street by
announcing that they have underreported such obligations. As of Sept. 30,
MedPartners was reporting $143 million in unpaid medical claims, up 27% from
the year-earlier amount.
With the PhyCor deal now scuttled, investors are wondering how deep
MedPartners' troubles are. At the very least, analysts noted, MedPartners'
depressed stock price is very likely to make it difficult for MedPartners to
keep up its aggressive acquisition pace, which was one of the key drivers of
its earnings growth.
In a conference call yesterday morning with investors and analysts,
MedPartners executives remained upbeat about the company. Larry House,
chairman and chief executive, said, "we have identified the issues, we have
addressed the issues and are confident about the direction in which we are
headed."
But analysts and major customers questioned whether MedPartners can mend its
problems so quickly. The company's legacy of rapid-fire acquisitions concerns
Linda Lyons, chief medical officer for PacifiCare Health Systems Corp., a
major California health plan that contracts with MedPartners. While Dr. Lyons
says MedPartners has many good ideas for improving medical groups, she
cautions: "Just as they begin operating one group practice, they acquire
another one, which muddies the waters."
MedPartners also faces a mixed outlook in dealing with its biggest
customers: HMOs. Clifford Hewitt, an analyst at Sanford C. Bernstein & Co.,
said he is encouraged that HMOs are raising rates for corporate accounts by a
brisk 5% to 6% this year. But other industry experts caution that prices are
being squeezed in the Medicare HMO market for people age 65 and over, which
traditionally has been a big earnings contributor for MedPartners.
MedPartners, launched only four years ago by Mr. House, has made a major
push into the so-called capitated managed-care market. About 33% of its total
revenue comes from capitated contracts. Capitation essentially means that
health-care providers agree to cover an individual's medical costs in exchange
for an upfront, fixed monthly fee from an employer or managed-care concern. If
the health-care provider signs up a large number of healthy patients who don't
overutilize the services, the provider can make good money. But, Mr. O'Neil of
Piper Jaffray said, "capitated contracts do involve more risk -- you can get
out of control rather quickly."
Meanwhile, some investors are regarding MedPartners' stock dive as a buying
opportunity. AmSouth Bancorp. fund manager Pedro Verdu, who sold about 100,000
of his 250,000 MedPartners shares when the PhyCor deal was announced, is now
considering adding more shares. Physicians still need to consolidate into a
company like MedPartners to better manage their businesses and negotiate with
managed-care companies, he said. Said Mr. Verdu: "The main question is 'is the
concept broken?' If you don't think the concept is broken, whether they earn
70 cents or 90 cents this year is almost immaterial."
PhyCor's shares fell 6.1%, or $1.625 to close at $24.875 in Nasdaq Stock
Market trading. Even so, some analysts conveyed their support of the
MedPartners dissolution by raising their investment ratings on PhyCor.
02:00 ET JANUARY 8, 1998 |
