MedPartners last week agreed to sell its hospital-based physician business, Team Health, to a consortium of private investors.
The deal will help MedPartners unload some of its $1.27 billion in debt but with a sale price substantially less than was projected.
The buyers are three private equity firms-an affiliate of Madison Dearborn Partners, Chicago; Cornerstone Equity Investors, Chicago; and Beecken Petty and Co., New York-and Team Health's management team.
MedPartners will maintain an equity interest of about 7.3%. It expects cash proceeds of $335 million before transaction costs and other expenses.
MedPartners acquired Team Health in 1996 as part of its $343 million purchase of Redlands, Calif.-based Pacific Physician Services.
MedPartners also closed the sale of its government services operations to America Service Group, Brentwood, Tenn., for $67 million in cash last week. That transaction was announced in December.
When Team Health was put on the block in June 1998, analysts estimated it would fetch $700 million.
However, the market for physician practice management companies has since soured, and Team Health's operating profits might have been lower than expected, said Brooks O'Neil, an analyst at Minneapolis-based Piper Jaffray.
In addition, other industry players that might have tendered an offer have been sidelined by their own struggles, O'Neil said.
Nevertheless, MedPartners spokesman Robert Mead said the company is "pleased with the outcome. It's a good price, and it allows us to do what we want in terms of moving forward with our business strategy."
MedPartners, based in Birmingham, Ala., is selling its PPM operations to focus on pharmacy benefits management.
The Team Health deal is expected to close by the end of March.
Team Health provides outsourced physician staffing and administrative services to 385 hospitals and clinics in 31 states. Its corporate offices will remain in Knoxville, Tenn.