Apria Healthcare Group, a Costa Mesa, Calif.-based home-care company, has unilaterally terminated its merger agreement with Vitas Healthcare Corp., to the dismay of the Miami-based hospice provider.
"We are trying to preserve our rights under the agreement in case we decide to litigate this issue," said Mark Cohen, vice president for corporate communications at Vitas. "We don't believe they had the right to terminate (the contract) unilaterally."
Apria announced Nov. 13 that its board of directors had terminated its June 28 agreement to purchase privately held Vitas in a $212 million transaction structured as a pooling of interests.
Lawrence H. Smallen, Apria's chief financial officer, said the board decided to terminate the agreement based on Apria's underperforming stock (Nov. 11, p. 26). He said the company also feared the deal would be a drag on earnings through next year and that the company wanted to focus on its core businesses, which include respiratory therapy and home infusion.
Apria's stock price had fallen from about $32 per share at the time it entered the merger pact to as low as $17 in New York Stock Exchange trading within recent weeks, Smallen said. Last week, it was trading at about $21 per share.
He said Apria's decision to unilaterally terminate the agreement was a "timing issue. We had hoped to mutually terminate the deal and announce a strategic alliance at the same time, but this wasn't possible. It takes longer to work out a business relationship."
Smallen said Apria was able to get out of the agreement by citing Vitas' failure to meet its Oct. 31 deadline to get its shareholders to approve the agreement.
Vitas questioned the use of a missed deadline to wiggle out of the deal.
"There are a number of timing and other issues related to securities issues that have broader implications than that minor point that they're making," Cohen said.
Although the companies may not have ended their merger agreement on a favorable note, they are still talking with each other about possible strategic alliances and partnerships.
Neither Smallen nor Cohen ruled out the possibility of the companies collaborating in some other way.
Charles Boorady, a senior healthcare services analyst with Prudential Securities in New York, said he would be surprised if Vitas followed through on threats of litigation, given the deterioration in Apria's stock.
"The stock price being lower makes the acquisition more expensive," he said. "Vitas would end up getting less consideration for their company.
"The decision demonstrates Apria management's strong conviction that their core business has good growth prospects, and they don't want to give away their currency too cheap."