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Biotech / Medical : Oxford Health Plan (OXHP) -- Ignore unavailable to you. Want to Upgrade?

To: men mailman who wrote (1115)	2/24/1998 5:44:00 PM
From: william liao	Read Replies (2) \| Respond to of 2068

i am considering your reasons. by the way, anyone has conference call number? i am clicking and pasting an article now. POINT OF VIEW: Oxford Health Rings 911 For Rescue Plan By Rick Stine A Dow Jones Newswires Column NEW YORK (Dow Jones)--The good news for shareholders of Oxford Health Plans Inc. (OXHP) is that David Bonderman and his investment group have agreed to fork over millions of dollars to help shore up the ailing HMO. The bad news is that Henry Kravis didn't see fit to do the same thing, a decision that may have allowed Bonderman and his company, Texas Pacific Group, to broker a deal that gives them pretty sweet returns and potentially a big stake in Oxford. This may all point to one disturbing fact: the troubles at Oxford are more severe than investors originally thought. You can easily come to that conclusion just by looking at the company's financial results. Tuesday, it reported a $284 million loss for the fourth quarter, an amount double what Oxford projected two months ago. Add the terms of the Bonderman rescue plan and you have a story that shows a severe situation at Oxford. Initially, published reports indicated that Bonderman and his Texas Pacific Group would team up with Henry Kravis and his firm, Kohlberg Kravis & Roberts, to pump $700 million of debt and equity into Oxford. The fact that Oxford could attract two such fabled investors cheered some shareholders. After all, Bonderman has made millions (real and paper profits) from some recent high-profile investments, including Continental Airlines Inc. (CAIA) and Beringer Wine Estates Holdings Inc. (BERW). Kravis and KKR have also hit home runs with some of their investments in companies such as Safeway Inc. (SWY) and Duracell International Inc. But Kravis elected not to participate in the Oxford rescue plan, leaving Bonderman and Texas Pacific to go it alone. There goes some of the wind carrying that balloon. The new financing package could end up pumping much more money into Oxford's coffers (more than $1 billion) than originally planned and could turn a large ownership position of the HMO over to Texas Pacific - at a healthy cost to Oxford. Under the financing plan, Bonderman's Texas Pacific will buy two series of preferred stock (which have voting rights), with one yielding 8% and the other 9%. Neither Oxford officials nor Texas Pacific representatives would make themselves available to talk about the terms of these preferreds so we have to do a little figuring for ourselves. Let's give Oxford the benefit of the doubt and assume it will pay a combined dividend yield closer to 8% than 9%. That comes to roughly $28 million a year. Not pocket change for a company that's been short of that recently. Dividends, especially high-yielding ones, are expensive for companies because they are paid to shareholders after taxes are paid. Interest payments on debt are paid out before taxes, offering a company a tax advantage in that reportable net income is lowered. We don't know what Oxford will pay as interest on the $350 million of debt it wants to sell. It will probably be at least the amount being paid on the preferred. Also what's interesting is the structure of the Bonderman leg of the financing. Texas Pacific has in a way created for itself a synthetic convertible preferred stock because warrants to purchase up to 22.5 million shares of Oxford are attached to each of these preferreds. Stay with me here, it's not as complicated as it sounds. Another famous investor reaped millions from convertible preferreds he bought from companies needing some financial aid. His name is Warren Buffett and he did so with Gillette Co. (G), Salomon Brothers (now part of Travelers Group) and USAir (now US Airways Group Inc.). Buffett's preferreds paid him a healthy dividend, too. And when the underlying stock of the company he invested in rose significantly, he could convert that preferred into an equity security and ride along with its capital gains. Bonderman not only gets the same thing with his investment, but what appears to be an even better deal: Because he'll own warrants that allow him to buy Oxford's stock at $17.75 (almost a $2.25 a share discount from the closing price Monday), he doesn't have to convert the preferred in order to own the stock. In other words, he's getting the best of both worlds, a high dividend AND the potential equity gains, without having to give up one for the other. What do current shareholders get? No dividend, dilution of their voting power whether or not the warrants are exercised and a very uncertain future. Despite the generous terms he's receiving, shareholders should hope Bonderman's sterling investment track record stays intact. Consider the alternatives. -By Rick Stine (201) 938-5151 p.s. hi, david, could you tell me how to post hyperlinks here? the same way? thanks a lot.