Physicians Resource Group is languishing as the eye-care physician practice management company awaits a firm proposal for a takeover by its largest shareholder, Memphis, Tenn., ophthalmologist David Meyer, M.D.
PRG's stock and physician relations are sinking to new lows, and two top executives departed within two days of each other.
Meyer, a former board member who owns 8.5% of the company's stock, has delayed three meetings with PRG's board since Sept. 21, when he was scheduled to offer PRG's board his physician-led takeover plan. Meyer and the board were scheduled to meet again Oct. 22, after Modern Physician's deadline, but there were no assurances a deal would be offered that day.
Neither Meyer nor PRG would comment on the reasons for the delay. But sources close to the negotiations say there's a standoff between Meyer's financial partners and physicians because each side wants some assurance the other is signing on to the deal before committing to it.
Meanwhile, the company is atrophying. The letter of intent Meyer and PRG signed July 25 is good until Dec. 31, when the company says it will run out of cash.
PRG cannot entertain any other merger or turnaround plans until the letter of intent expires, or it must pay $10 million to Meyer.
The company as of June 30 had only $19.7 million in cash. NationsBank received $4.5 million of it in a loan payment due Sept. 30, says Senior Vice President Jonathan Bond.
Asked if Meyer's delays hurt the company and its stock price, Richard Gilleland, the company's chairman and recently resigned chief executive officer, says flatly, "The answer is yes."
PRG's stock sunk to an all-time low of 50 cents on Oct. 13. It was at $3.81 when Meyer and PRG signed the July 25 letter of intent for a $5-per-share offer.
Sources close to the negotiations say Meyer's offering price may be revised downward as the company's stock price drops.
Meyer's deal would require any litigation by and against the company to be settled before it closes. That would include cases brought by doctors against PRG for failing to perform promised services. On Oct. 13, PRG filed a document with the Securities and Exchange Commission revealing that 26 of its 127 practices, or 20.5%, are either filing breach notices or litigation against the company.
Among the practices suing is Texas Eye Institute, a Houston group run by PRG board member Alan Baum, M.D. It and other Houston practices make up 12% of the $126.7 million in management fee revenues PRG booked in the first six months of 1998, according to the SEC filing. Baum did not return phone calls seeking comment.
Meyer and 10 other doctors, who collectively owe $2.8 million in 1997 fees, resigned in a board reorganization in January. Six months later, Meyer proposed his takeover plan, under which he and other doctors would receive stock for paying outstanding fees.
Chief Financial Officer Pamela Westbrook didn't wait to see how Meyer's plan would turn out. Without giving a reason, she left Sept. 29 to take a similar position at Cyberonics, a Houston-based medical device firm. She was replaced by PRG Controller Ann Chaney.
Gilleland acknowledges his Oct. 1 resignation as CEO was prompted by Meyer's planned takeover, although he says Meyer did not hint he would lose his job. Gilleland says he will resign as chairman if Meyer succeeds.
Under his contract with PRG, Gilleland would receive $2 million over two years, as well as 1.5 million stock options at a price of $2.56 each, if the board deems his resignation was motivated by a change of control.
Gilleland, who left to run Bermuda-based Tyco International's $4.5 billion healthcare unit, says getting PRG back on its feet was more difficult than he thought. However, he wouldn't be more specific, saying "it would be dangerous to go on the record with that."