A key issue that led to the breakup of Integrated Health Services and Coram Healthcare was how they would break up, Coram executives say.
Last week, Owings Mills, Md.-based IHS terminated its proposed acquisition of Denver-based Coram, a home infusion company, just days after the two firms agreed to a price reduction. IHS didn't disclose reasons for the termination.
The original deal, as announced last October, was valued at more than $600 million and would have created the nation's largest provider of post-acute services.
Donald Amaral, Coram's president and chief executive officer, said talks broke down within 48 hours after Coram agreed to reduce its purchase price to $184.4 million from $280 million. Both the original deal and the renegotiated deal included IHS assuming $375 million in Coram debt.
In return for the reduced price, IHS agreed to raise the deal's breakup fee to
$25 million from $17.5 million. Amaral said a major sticking point between the companies became under what circumstances the breakup fee would be paid. "They (IHS) wanted wiggle room and management was not willing to grant it," he said.
The deal also unraveled, Amaral said, as a result of more than 50 comments and questions received by the two companies from the Securities and Exchange Commission during the agency's review period. He said the comments concerned certain transaction-related accounting and pooling-of-interests issues.
But Robert N. Elkins, M.D., the chairman and chief executive office of IHS, has publicly stated his desire to restart negotiations. "I haven't given up on Coram yet," Elkins told Dow Jones News Service. "We're going to keep working with them to see if we can cut some kind of a deal. Wall Street hates the Coram acquisition, but we need to do what's best for the company. Market share and market dominance is what healthcare is all about now."
Amaral said Coram had accepted the termination of the deal because its continued uncertainty hurt Coram's chances of refinancing some $464 million in debt.
Amaral said the lack of commitment from IHS further threatened the resolution of a longstanding legal battle with Caremark International, which was recently acquired by MedPartners.
As part of the original deal, IHS had negotiated the settlement of lawsuits between Coram and Caremark stemming from Caremark's 1995 sale of its home infusion unit to Coram for $209 million in cash and $100 million in securities.
IHS negotiated a deal with MedPartners to drop the lawsuits upon completion of the Coram deal. But last week's termination means all the settlements are off.
Amaral said he had never agreed to the renegotiated terms in the first place and will attempt to settle the company's differences with Caremark in court, starting with a June 2 settlement conference.
Amaral said Coram and IHS are now discussing whether IHS will pay Coram the breakup fee. He said he expects the issue to be resolved without litigation.