A planned merger of Paracelsus Healthcare Corp. and Champion Healthcare Corp. would create a new five-hospital system in the Salt Lake City region to battle Intermountain Health Care and Columbia/HCA Healthcare Corp.
It also enhances the clout of both Paracelsus and Champion, which have drastically different backgrounds.
Last week, Houston-based Champion and Pasadena, Calif.-based Paracelsus said they would combine in a tax-free deal in which Champion shareholders will own a 40% interest. The other 60% will be held by Paracelsus' executives. The new company will retain the Paracelsus name and will operate 31 hospitals in 11 states.
Last year, a planned merger between Paracelsus and Brim, a Portland, Ore.-based system, broke off. Paracelsus general counsel Robert Joyner said the merger with Champion is a better fit because Brim was heavily involved in senior assisted-living projects. "We're sticking with our core business with Champion," he noted.
The new Paracelsus will own five Salt Lake City-area hospitals, a total that includes a pending deal to purchase FHP Hospital.
Paracelsus and Champion acquired four of the hospitals from Nashville, Tenn.-based Columbia. "I'm sure Columbia would have rather had two weaker competitors" in that market, said Peter Costa, healthcare analyst in the Boston office of Chicago Corp., an investment banking firm.
In addition, Champion recently bought Select Health Systems, a Salt Lake City home healthcare agency with about $5.3 million in annual revenues.
Costa said the merger is positive because it "gives (the two companies) the opportunity to leverage into a much larger organization."
The emergence of Paracelsus as a publicly traded company could shed light on one of the most private of investor-owned hospital firms. The company has $75 million in publicly traded bonds but hasn't issued public stock. Because Champion is publicly traded, Paracelsus shares will be traded on the American Stock Exchange.
The merger means that ownership of Paracelsus will change dramatically. It is now a subsidiary of a German company owned entirely by Manfred G. Krukemeyer, M.D., a 34-year-old surgeon who lives in Osnabruck, Germany. After the merger, ownership will be split among top Paracelus executives who have received stock options in recent years, Joyner said.
Krukemeyer inherited the company when his father, Hartmut Krukemeyer, died in 1994. The elder Krukemeyer founded it in 1991 as part of a larger international hospital corporation.
According to Paracelsus' filings with the Securities and Exchange Commission, Manfred Krukemeyer, who serves as chairman, drew a salary of $1.8 million in 1995. In addition, as sole owner he receives the U.S. company's profits, which were $13 million in 1995.
However, Paracelsus' U.S. business is run by R.J. Messenger, president and chief executive officer, who drew compensation of $5.6 million in 1995, according to the filing.
When asked about the compensation, which is much larger than that of CEOs at other investor-owned hospital chains, Joyner said Messenger received a large bonus in 1995. He declined to say why.
In contrast to Champion, which has grown quickly over the past few years through acquisitions, Paracelsus' profits have leveled off, according to SEC reports. The company reported $14.9 million in profits in 1991, but that slumped to $10 million in 1992. In 1995, the company reported $13 million in profits on $509.7 million in revenues.
Under the new company structure, Krukemeyer will remain as chairman and Messenger will be vice chairman and CEO. Champion founder Charles Miller will be president, and Champion's chief financial officer, James VanDevender, will be executive vice president and CFO of the new company.