Can new management and independence fix Community Psychiatric Centers' 29 U.S. psychiatric hospitals?
That's the prescription of Richard Conte, CPC's president and chief executive officer, who blamed the division's money-losing ways on its former managers, whom he said were more interested in "self-preservation" than making tough decisions. He also said freeing the psychiatric hospitals from CPC's corporate overhead costs will make them profitable.
"I applaud this decisive action," said Ted James, an analyst for Genesis Merchant Group, a San Francisco-based investment banking firm.
Conte last month unveiled a strategy in which CPC's domestic psychiatric hospitals will be spun off in a special taxable dividend to shareholders in mid-1996. The new company will have about $50 million in debt.
CPC's remaining operations, which Conte said have the most growth potential, will remain at CPC, which he will continue to head. Those businesses are 14 long-term critical-care hospitals and 15 psychiatric hospitals in the United Kingdom.
By paring out the domestic psychiatric operations, CPC won't have the drag on earnings it had for 1995. Although Conte didn't disclose financial results for the fourth quarter ended Nov. 30, 1995, he said the domestic psychiatric hospitals lost money on operations.
In the fourth quarter, CPC closed six U.S. hospitals, and more may be closed in the near future under the division's new president, William Hale.
In a conference call with stock analysts last month, Conte disputed the notion that he was giving Hale a losing proposition. "This is not a fire sale," he said, adding that Hale's management brought in a shake-up that was long overdue.
"A whole hell of a lot of people were really worried...that their salaries might be cut, that they might lose their jobs," said Conte about why a turn-around had taken so long.
Hale, who was hired from rival Charter Medical Corp. as chief operating officer last April, replaced Kay Seim as president of CPC's domestic psychiatric division in November.
Although Hale didn't refer to Seim by name, he clearly blamed her for much of the psychiatric division's problems. "There was not a lot of visibility by senior management, not a lot of accountability placed on CEOs," Hale said. "That was not being driven by the person who occupied the seat before me."
The company's shares have languished in a stock market bullish on healthcare because the Las Vegas-based company has produced a string of depressing news, including a $45 million class-action shareholder settlement. Unfortunately, the psychiatric business continues to suffer from an oversupply of inpatient beds, which hospital managers can't seem to keep full.
James valued Hale's new company at about $1 per share. He valued the remainder of CPC at about $12 per share.
However, CPC could trade as low as $8 and high as $22, depending on whether the psychiatric operations turn around and how well CPC's critical-care subsidiary performs, James said.