Shares in merger partners National Medical Enterprises and American Medical International fell last week, but bankers said that financing the $3.3 billion deal should be no problem.
"There's a higher degree of deal risk, but it's not insurmountable," said Edward Mally, vice president of high-yield bond research at Citicorp, New York.
Ironically, Columbia/HCA Healthcare Corp.'s pending $5 billion acquisition of Healthtrust may be beneficial to financing NME's deal.
Mr. Mally said that Healthtrust's $700 million in subordinated debt will likely be refinanced by Columbia/HCA, prompting investors to look elsewhere for high yields. NME has said it plans to issue $900 million in senior and subordinated debt to finance the AMI acquisition. The deal will make Santa Monica, Calif.-based NME an 84-hospital chain with $5.3 billion in annual revenues.
In addition, Healthtrust's $1.2 billion bank-credit facility also is likely to be refinanced by Columbia/HCA, leaving banks to look for additional business in a rapidly consolidating industry.
Bankers who took a chance on NME earlier this year are now patting themselves on the back for their foresight, sources said. Last spring, when NME was facing significant litigation and government investigation, four banks stepped in to give NME a new $465 million revolving credit line and credit agreement. They included the Bank of America, the Bank of New York, Bankers Trust and Morgan Guarantee.
An executive at one of those banks said the banks' faith in NME's chairman, Jeffrey Barbakow, is now payingHospital companies
off, as those banks will reap $2 billion in business from a new credit facility to finance the AMI deal. The executive, who declined to be identified, said he'd already received calls from banks wanting to join the lending group.
Although financing appears to be strong, shareholders are still waiting for a lift in their investments.
While the stock market rallied last week, shares in both NME and AMI failed to follow that trend in trading on the New York Stock Exchange. On Oct. 19, AMI shares closed at $23.63. The price was up slightly from $22.50 on Oct. 10, the day before the merger was announced, but had drifted down from the $24.38 that it had reached just after that announcement. NME stock was at $14.50 on Oct. 19, down from its price of $16.38 before the merger announcement.
However, the falling stock price cannot jeopardize the deal, said Christi Sulzbach, NME senior vice president. She noted that the stock price of Columbia/HCA Healthcare Corp. also slumped after it announced its acquisition of Healthtrust earlier this month.
In addition, both AMI and NME would incur multimillion-dollar penalties, called break-up fees, if the deal is not completed. According to the merger document filed with the Securities and Exchange Commission, AMI would have to pay NME $75 million if it terminates the deal. NME would have to pay $150 million to AMI if it fails to secure the necessary financing.
Last week, Dallas-based AMI reported net income of $26.9 million, or 35 cents per share, for the fourth quarter ended Aug. 31, compared with a net loss of $2.4 million, or 3 cents per share, in the year-ago period. It reported a 13% increase in revenues to $638 million.
For the year, the company reported net income of $137.1 million, or $1.78 per share, compared with net income of $41.5 million, or 54 cents per share, in the previous year. Revenues rose 6% to $2.4 billion.