Michigan Capital Healthcare will go to court this week to defend a fairness opinion on its proposed joint venture with Columbia/HCA Healthcare Corp.
Michigan Attorney General Frank Kelley wants the opinion disqualified because it was issued by Dean Witter Reynolds, which has business ties to Columbia.
Kelley filed a legal motion to disqualify the opinion, although he did not dispute its conclusions.
The challenge upset Michigan Capital, whose attorney, Robert W. Stocker II, said he was led to believe the attorney general's office was ready to settle a lawsuit it had filed to block the transaction. The proposed deal calls for Columbia to purchase 50% of the Lansing, Mich.-based not-for-profit hospital system's assets for $43.8 million.
A hearing is scheduled for Sept. 5 in Ingham County (Mich.) Circuit Court to hear Kelley's motion for a new fairness opinion.
Also that day, the court will hear Michigan Capital's request for a dismissal of the attorney general's lawsuit. Dean Witter is not named as a party to the suit, which was filed in June.
Dean Witter, along with other firms, has served as an underwriter in public offerings of Columbia securities worth $618 billion between May 1994 and July 1996, according to court documents filed by Kelley's office.
Dean Witter analyst Todd Richter has issued aggressive buy recommendations on Columbia stock several times since 1993, according to the documents.
In the fairness opinion, Dean Witter disclosed that it actively trades Columbia stock in its own account and the accounts of its customers. The firm also said it advised Columbia in its purchase of Basic American Medical in 1992 and co-managed Columbia securities offerings in 1992 and 1995.
Stocker said he doesn't see a conflict of interest, even if Dean Witter and its clients hold Columbia stock. He called Michigan Capital "a little pea in the big pod" of Columbia, which has almost 350 hospitals.
"I don't see how (this transaction) has any bearing on what happens with Columbia's stock," he said.
Columbia spokesman Jeff Prescott said it was surprising the Michigan attorney general would "question the reputation of Dean Witter.
"I think you would be hard pressed to find a large, well-respected financial services firm with whom we have not done business," Prescott said.
Dean Witter declined to comment on the attorney general's charge that it was not an independent evaluator.
The $43.8 million price set in the Columbia deal is half the $87.5 million valuation of Michigan Capital as determined by Dean Witter in its fairness opinion, issued in June.
Columbia also has agreed to contribute $10 million in capital and other resources to the joint venture.
Stocker said Columbia had no part in selecting Dean Witter to do the fairness opinion. He said Michigan Capital approached eight investment houses and picked four finalists to give oral presentations.
Stocker said the fact Dean Witter follows Columbia and other major healthcare companies made it an attractive choice.
"They knew the industry," he said.
Further, Stocker pointed out that faculty members of Michigan State University who evaluated the fairness opinion at Kelley's request concluded the methodologies used appeared to be reasonable.
They noted that the valuation is consistent with an analysis conducted last year by Goldman Sachs & Co., which valued Michigan Capital at $56.4 million to $58.8 million.
Dean Witter was paid about $200,000 to issue the fairness opinion, Stocker said.