Living Centers of America last week put on hold its proposed merger with Rehability Corp., after the Brentwood, Tenn.-based outpatient rehabilitation chain reported disappointing first-quarter earnings.
While some analysts initially predicted the company would earn as much as 13 cents per share for the first quarter ended March 31, Rehability's net income dropped 47% to $568,000, or 8 cents per share, compared with net income of $1.1 million, or 15 cents per share, in the year-ago period. First-quarter revenues increased 8% to around $43 million.
In April, Living Centers agreed to buy Rehability in a stock deal valued at $159 million (April 17, p. 4).
Rehability operates 163 outpatient rehabilitation centers in 20 states and provides contract rehabilitation services to 59 acute-care hospitals and more than 1,000 nursing homes.
"Given this fact, and the recent weakness in both Living Centers and Rehability stock prices, the parties have agreed to hold further negotiations relating to the pending (merger) plan," Living Centers officials said.
Published news reports said the company would hold new talks with Rehability to amend conditions of the purchase. Living Centers officials couldn't be reached for comment.
Meanwhile, Rehability's first-quarter earnings statement said it "expects (Living Centers) to abide by the merger agreement and does not believe that (the company) has the right to unilaterally terminate the merger."
Rehability President and Chief Executive Officer William Youree said the company's first-quarter results were better than the third and fourth quarters of fiscal 1994. He also said the company's internal cost-cutting programs that began during the third quarter of 1994 are now completed.
Houston-based Living Centers of America is the nation's fifth-largest nursing home chain, operating 251 centers nationwide.