Horizon Mental Health Management has signed a letter of intent to acquire American Day Treatment Centers in a tax-free stock swap valued at $17.5 million.
If the deal is completed, Annapolis, Md.-based American Day would become a wholly owned subsidiary of Denton, Texas-based Horizon, after a tax-free exchange for all outstanding shares of its stock.
The acquisition of American Day is intended to make Horizon more attractive to managed-care organizations by expanding its geographic area of coverage and services, Horizon executives said.
Horizon, one of the largest contract managers of mental health programs in the country, has contracts with 122 hospitals in 36 states. It posted total revenues of $45.5 million for the nine months ended May 31.
American Day, a privately held company, owns 22 partial-hospitalization centers and has contracts with general acute-care hospitals to manage four other centers. It reported revenues of $13.9 million and a net loss of $250,000 for the six months ended June 30.
Horizon announced that under the terms of the pending agreement it would issue 717,213 shares of its common stock, representing about 14% of the company's common stock on a fully diluted basis after the transaction is completed.
James McAtee, Horizon's executive vice president for finance and administration, said the companies are negotiating the terms of a binding contract that would be subject to shareholder approval.
In its letter of intent, Horizon based the value of the deal on the average closing price of its stock for the 15 days ended July 18, which was $24.40 per share.
McAtee said the final value of the deal will reflect the closing price of Horizon's stock at the time the transaction is completed, which is expected to be in September. He said the transaction would be tax-free because American Day would technically be merging with one of Horizon's subsidiaries rather than being purchased outright.
Horizon was formed in 1994 when McLean, Va.-based Mental Health Management merged with Horizon Mental Health Services in Denton. The new company went public in March 1995.
James K. Don, president and chief executive officer of American Day, said the merger will provide "synergistic opportunities" for the companies.