Although Quorum Health Group last week terminated discussions with an unidentified merger partner, sources say the hospital chain still may reach a deal later this year.
Just a week after disclosing that it was in possible merger talks with another healthcare company, Quorum Healthcare Group said those discussions had been terminated by mutual agreement. Officials did not elaborate on the reason.
Recent filings with the Securities and Exchange Commission show that a month before the Nashville, Tenn.-based hospital chain announced it was discussing a potential deal, one of its largest stockholders sold nearly $13 million worth of stock in the firm.
The disclosure adds to the speculation about why Quorum may be sold or merged with another firm.
The stock sale was made by Goldman Sachs, a New York-based investment bank, which sold nearly 600,000 of its 5.1 million shares of Quorum last month at prices ranging from $22 to $22.25 per share.
When asked about the sale, Goldman Sachs healthcare analyst Roberta Walter said the firm doesn't "comment on those types of things." Quorum officials also declined to comment on the sale.
Goldman still is the second-largest Quorum stockholder with a 9% stake. The largest shareholder is Welsh, Carson, Anderson & Stowe, a venture capital group that financed the company's 1989 leveraged buyout. New York-based Welsh Carson owns 27% of Quorum.
Quorum's board chairman is Russell Carson, general partner of Welsh, Carson. He was unavailable for comment.
However, sources say the company's investors are anxious for a deal to merge the company or split it up into two companies, one that owns hospitals and one that manages them. Currently, Quorum owns 14 hospitals and manages 257. Quorum is the nation's largest provider of management services for hospitals.
"They're virtually different assets," said Peter Young, a healthcare strategic analyst based Fort Lauderdale, Fla., about the chain's break-up value.
Shares of Quorum, which are traded over the counter, rose 15.8% in 1995, but that lagged behind other hospital companies, which posted an average 40% rise last year. However, news of a potential merger this month buoyed the stock price to $27 last week.
When the merger discussions became public, it might have short-circuited a carefully planned time schedule, said Jeffrey Villwock, healthcare analyst at Johnson Rice & Co., a New Orleans, La.-based investment firm.
He pointed out that Quorum can't merge with another firm and gain the tax advantages of "pooling of interest" before mid-May. Quorum went public in May 1994, and the SEC requires a two-year wait before another major recapitalization. If it did go through with the merger, shareholders would have to pay taxes on the transaction and the surviving company would have to pay taxes on goodwill, which is the acquisition price paid above the asset value.
Also, the company reported a 23% increase in profits for the second quarter ended Dec. 31, 1995, to $16.9 million, or 34 cents per share, compared with $13.8 million, or 28 cents per share, in the year-ago period. Revenues grew 37% to $273.2 million.
For the six-month period, Quorum reported a 25% increase in profits to $31.5 million, or 63 cents per share, compared with $25.2 million, or 51 cents per share, in the year-ago period. Revenues advanced 34% to $527 million.