MedCath is one physician practice management company investors won't be able to kick around anymore.
Management at the Charlotte, N.C.-based cardiology PPM, which went public in December 1994, announced March 13 it would take the company private through a $240 million leveraged buyout. Two New York buyout firms -- Kohlberg Kravis Roberts & Co. of "Barbarians at the Gate" fame and Welsh, Carson, Anderson & Stowe -- will provide $105 million each, and MedCath's management, led by president Stephen Puckett, will kick in $17 million of equity. The remaining $13 million will come from a new credit facility.
The deal works out to $19 a share, compared with the $16.50-per-share price at the time the deal was announced.
The buyout occurred three weeks before a scheduled April 7 stockholders meeting at which MedCath would have revealed exactly how short of earnings projections it would fall due to slow development of its Tucson (Ariz.) Heart Hospital.
Analysts expected MedCath would earn about 72 cents per share in the fiscal year ending Sept. 30, 1998. Net income for fiscal 1997 was 58 cents per share.
In announcing the buyout, MedCath representatives said its earnings would be "substantially below" expected levels because the number of patients and procedures in Tucson fell well below projections.
Investors have punished MedCath before for its financial troubles. On June 26, 1996, MedCath's stock dropped 53% when reports outlined financial woes at its first heart hospital, located in McAllen, Texas. At that time, MedCath stock went from an all-time high of $42.63 in May 1996 to an all-time low of $7.75 two months later. During 1997 and 1998, MedCath's stock has stuck between $13 and $19 per share.
MedCath did not refer specifically to past problems in its announcement of the buyout. However, KKR executive Ned Gilhuly in a prepared statement said MedCath's plans to open more heart hospitals could be "implemented much more effectively as a private company."
MedCath operates three specialty heart hospitals and is developing five others. It also manages 100 physicians in five practices as well as other heart-care facilities.
