When Swiss personnel services company Adecco completes its $1.6 billion acquisition of Olsten Corp.'s staffing units at year-end, the byproduct of the deal will be an independent home health company with little debt and growing revenues.
Olsten recently paid $61 million to the federal government to settle criminal and civil Medicare fraud charges against its home health operations.
Olsten's health services business, primarily home infusion and home nursing, will be spun off into a separate public company.
The new company will have assets of $500 million, debt of between $50 million and $100 million, and projected 1999 revenues of $1.3 billion, company officials said.
Those figures give the new company "one of the healthiest balance sheets in the industry," said Ed Blechschmidt, Olsten's president and chief executive officer, in a conference call detailing the transaction.
Blechschmidt will be chairman and CEO of the new company, which will take a new name, logo and image, he said.
Robert Fusco, president of Olsten's health services division, will be the new company's president.
Talks between the two companies began at least eight months ago. Adecco sought Olsten's general and information technology staffing units to cement its place as North America's staffing leader and the global leader in IT staffing.
But Olsten's legal woes and the financial instability of the health services division apparently impeded the deal.
Olsten has spent much of the past year putting its legal house in order. Last October it announced a $4.5 million settlement of a federal Medicare fraud probe involving its home infusion subsidiary, Quantum Health Resources.
Early this year it reported that the federal government had dropped a separate criminal inquiry into Quantum, although a civil inquiry remains open.
In March, Olsten agreed to settle federal criminal and civil investigations into its Medicare cost reports and its home health dealings with Nashville-based Columbia/HCA Healthcare Corp.
Under the terms of the settlement, Olsten agreed to pay $61 million, and a subsidiary would plead guilty to federal kickback, conspiracy and mail fraud charges. Olsten made its payments and entered its pleas Aug. 11, and a week later announced the deal with Adecco.
In its quarterly filing with the Securities and Exchange Commission, Olsten reported $745.9 million in long-term debt. The company said it borrowed $45 million to pay its $61 million settlement on August 11. Operating cash flows covered the balance. Olsten operates more than 1,000 generalist and information technology staffing offices worldwide. Together, the units generated revenues of $876 million in the company's second quarter ended July 4.
Over the past 12 months, Olsten has cut costs in its home nursing business by closing 100 locations. It now operates 254 branches in 41 states.
The company's streamlining has paid off. Olsten reported net income of $13.5 million, or 17 cents per share, for the quarter ended July 4, compared with a $33.5 million loss, or 41 cents per share, in the year-ago quarter. Revenues rose 11% to $1.2 billion. Revenues in health services grew to $373 million, up 13% from the year-ago quarter.
"We have turned the corner on profitability," Blechschmidt said.
With its legal and fiscal woes behind it, the new home health company can take advantage of the prospective payment system the government expects to introduce in 2000, Blechschmidt said.
As the nation's largest provider of home nursing and infusion therapy, the spinoff company could become a major consolidator in the industry.
"We'll have the opportunity to expand on that No. 1 position through a fragmented marketplace," Blechschmidt said.