A New York investor will increase its ownership in PhyCor after agreeing to limitations that would prevent it from taking over the troubled physician practice management company.
In a March 8 Securities and Exchange Commission filing, PhyCor revealed it had signed an agreement with Warburg Pincus Equity Partners that would allow the investor to expand its holdings in the PPM to a maximum of 14.99%.
As of the SEC filing, Warburg Pincus owned 7.5 million shares of PhyCor, representing 9.8% of the company's 76.2 million shares of common stock. The investor, which has been purchasing PhyCor stock since December 1998, paid an average of $5.71 per share, or $42.8 million. It has 1.5 million more shares than Baltimore-based investor Legg Mason, whose affiliated funds own 7.6% of PhyCor stock.
In March, Nashville, Tenn.-based PhyCor traded for around $5 per share on the Nasdaq National Market.
While the two-year agreement would allow Warburg Pincus to expand its holdings as PhyCor's largest stakeholder, the investor would be limited in how it could influence the company, which is suffering through doctor defections and hundreds of millions of dollars in earnings writedowns.
According to the agreement, without the permission of PhyCor's board of directors Warburg Pincus could not:
John Crawford, PhyCor's chief financial officer, says Warburg Pincus had to agree to the conditions to get the company's permission to increase its stake. In Tennessee, an investor must receive permission from a company to buy more than 10% of its stock, a requirement that guards against hostile takeovers.
PhyCor has said it is listening to multiple offers from undisclosed parties to buy the company's stock and take it off Nasdaq. Crawford says Warburg Pincus would have no advantage in those negotiations, despite its current holdings.
Warburg Pincus is part of Warburg Dillon Read, the investment banking division of Swiss bank UBS AG.