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PMDX is an operator of 19 standalone, multi-modality diagnostic imaging centers in California, primarily grouped in Southern California. PMDX has a 60% interest in Diagnostic Imaging Services, Inc. (Nasdaq BB: DIAM), which itself operates 12 centers in the L.A./S.D. areas and has other imaging assets servicing hospitals. PMDX also owns Future Diagnostics, Inc. (FDI), an organization providing network development and management along with diagnostic imaging cost containment, utilization review and physician and credentialing services. PMDX's interest in DIAM totals 7.2M shares - 6.7M shares plus 525K warrants. At today's close, this interest is valued at $11.7M; DIAM's closing price was $1.62, up from about $.75/share in early January. PMDX's market cap is $20.1M - 42M outstanding (shares and warrants) at a closing bid or $.48. Therefore, the value assigned to the PMDX assets is $8.5M. $8.5M for about $52M in break even FY96 revenue (the year ended 10/31/96), I project. This in my opinion is cheap given the state of the imaging business today, and the catalyst for starting the thread. I've seen no evidence of institutional interest in either PMDX or DIAM, and I've been watching for a long time. On September 13, 1996, PMDX announced that it had begun to explore various options to enhance the value and position of its various operations. On January 14th, DHSM announced that it had signed a letter of intent to acquire (contingent upon financing - DHSM subsequently announced that it had retained Prudential to raise the funds - and board approval of a definitive aagreement) 4 hospital-allied MRI operations from DIAM, a $10M in revenue business reading the press release and "a well-run business with an excellent clinical staff and high-quality diagnostic assets" per the DHSM release. Recent buying of DIAM shares suggests that the package of "cash and an assumption of operating asset related debt" DIAM would get is favorable. Or perhaps buyers think that DIAM is becoming profitable after a year of "merging" operationally with PMDX. The companies can use the package. Prior to PMDX entering the scene, DIAM was paying prime plus 10% for some of its money. PMDX pays prime plus 3%, 3.5% on its lines, including that extended for the benefit of DIAM. Common sense dictates that the cash will be used to pay down the lines, and the assumption of debt cuts into a large pile of debt on the two balance sheets. Whether the remainder of the companies is sold in one piece is unknown. HRC says it is looking for imaging centers in 300 major cities. HRC has zero CA imaging facilities to provide complementary services to its 80+ other CA medical facilities. USDL has substantial CA operations given MIGA, Link, AMS etc., but can lock up the state with a buy of PMDX/DIAM and be able to push back when payors come asking for further discounts. MRII seems content to pick up the odd Hoboken Iron Bound center. DHSM thinks the companies have something to offer. Are there others? Got to be. HRC/HII must have gotten the attention of an additional set of players with HRC-like resources. The PMDX/DIAM combined debt is a drawback. My guess is that there is $35M too much. This figure would knock down the consideration to shareholders in an offer. But, given the revenue involved in the DHSM transaction, a not insubstantial amount of debt must go if and when DHSM closes. The absence of profits is another. PMDX should be right around break even at FY96 close. This is quite an achievement from 2 years ago. This year should be profitable in my opinion. Revenue has been stepping up each year and expenses have been reduced by the operational combination with DIAM. What I've read suggests that the industry is up ticking with reliance being placed on increased diagnostic testing to reduce patient costs downstream. In an acquisition, though, PMDX becomes very profitable instantly. Replace the prime plus 3%,3.5% with much cheaper money; right-size operations; and add the extra layer of business a buyer like HRC would bring to the party. And the PMDX NOLs. A USDL wouldn't pay taxes on its CA income till 2020! Although, I'm not familiar enough with beans to definitively speak on this facet. The big plus is the CA franchise PMDX/DIAM provides. Goffman of USDL has said that CA is one of USDL's most important markets. Billion-dollar-sized companies don't buy a center here and there. My guess is that $1.50/PMDX share is a possible number. In round numbers, $140M in cash/stock and assumption of debt for a valuable franchise of $70M in revenue. A higher number for shareholders if there are incipient profits, and higher the greater the decrease in debt. CEO Howard Berger has been a buyer of PMDX stock over the past year, the most recent acquisition being 100K shares at $.45 last August or so, bringing his position to about 13M shares. Ready, set, comment. Best wishes. | ||||||||||||||
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