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Biotech / Medical : FPA Medical Management - FPAMQ -- Ignore unavailable to you. Want to Upgrade?

To: Kurthend who wrote (847)	7/6/1998 9:36:00 PM
From: Richard D	Read Replies (1) \| Respond to of 1110

Kurt, This, along with the other money loser, Pacificare, are out with a swift boot from FPA. Arizona and Pacificare were known money losers, although FPA is keeping some money making Pacificare operations. This is all part of the plan, and Dresnick is hitting on all cylinders lately. The next rumor is that there will be a press release soon regarding a renegotiated Foundation contract. These are all necessary and extremely positive. Each item gets us that much closer to a cash-flow positive state. Regards, Richard

To: Kurthend who wrote (847)	7/7/1998 2:12:00 AM
From: Douglas V. Fant	Read Replies (2) \| Respond to of 1110

Kurt, "A Tale of Two Industries".... FPAM's advisors' language in the press release sounds eerily like the advice we received in the energy industry back in the late 80's. At that time both oil and gas prices collapsed both falling by about 66%. We sat at that time on a far flung collection of oil & gas fields and needed to cut costs quickly, since following the T. Boone Pickens acquisition period, most energy companies defensively carried large loads of debt in order to look less attractive to corporate raiders. So we sought outside help for new ideas to avoid "crashing and burning". Outside consultants helped us analyze our operations- and lo' and behold- we discovered that about 75% of our cash flow came from only about 33% of our properties. (We called these properties "core assets"). So we discarded the "geographic empire" mentality, and zeroed in on our best markets. We sold off or closed the 2/3d's of our assets that were not part of the major cash flow producing stream. It was a painful 3 or 4 year process. But we radically reduced our costs of doing business on a per-barrel basis. In fact nowadays oil sits around $14/barrel, down from its $39/barrel peak in 1979, and gas sits at around $2.30/mcf, as compared to $4.25/mcf in 1980-81. Yet we produced record profits in 1996 and 1997, and even with oil prices down currently will produce solid results in 1998. Now can FPAM do the same? I do not know. But from the contents of their press releases I can see that FPAM's Management is following a similar corporate reorganizational strategy that most major energy companies followed in the 1980's with great turnaround success. One other thing that we quietly did in the 80's was to go back into the market and buy back our debt at a greatly reduced price. I bet that FPAM will do the same. That's why I have been hinting here for some time that it will cost FPAM a lot less than you think to restructure itself financially. FPAM may "owe" $315mm under one of its loan agreements- but if you can buy that debt back @ 70% of its value in the open market- then in reality FPAM only "owes" about $225 mm under that loan arrangement. Now on the other hand the Pacificare announcement today was not good. You can't lose too many big customers and make your reorganization stick. Indeed Pacificare may have acted a bit rashly (lawyers whispering in Management's ears???) in terminating all of the FPAM contracts. My guess is that Pacificare recognizes that some of their contracts are losers, but they need the "winners" to package with the "losers" in order to sell the whole group to another PPM. Pacificare realized that if FPAM filed a Chapter 11 proceeding then FPAM could unilaterally affirm and keep the good contracts and reject the bad contracts- and Pacificare would be stuck with the "duds". So Pacificare struck first, but then held out a 'fig leaf" to FPAM's Management saying that FPAM could rebid some of the contracts... (Or was it recognition on the part of Pacificare that there aren't too many other PPM's willing to jump in on these contracts on the same terms? And if they are losers to FPAM, then they will likely also be losers to Pacificare so long as they hold the treatment repsonsibilities). My only question is what percentage of Pacifcare's contracts were core/non-core? Also apparently FPAM was not in violation of the terms of all of its contracts with Pacificare. Did Pacificare breach any of its agreements with FPAM by terminating all of the contracts? The plot thickens.... Sincerely, Doug F.