Acadia Healthcare hopes the announced sale last week of 21 behavioral health facilities in the United Kingdom will clear antitrust obstacles to its $2.2 billion acquisition of 300-hospital Priory Group.
But the U.K. regulatory review and planned hospital sale have been costly and a major distraction to operations, Acadia CEO Joey Jacobs said in a release.
Those two issues have converged with lower margins in some of Acadia's U.S. hospitals to ding third-quarter earnings that will be announced next week.
Jacobs said the U.K. regulators' announcement of continued investigations led Acadia to sell the 21 behavioral health facilities for $390 million in cash to BC Partners. Acadia said it expects regulators to now approve the sale by Nov. 18.
That divestiture won't necessarily stop the next phase of the antitrust investigation into the Priory acquisition, the company said.
Regulators could determine to reject the proposed sale and Acadia can't integrate Priory's business until the entire review process is done, Jacobs said.
Acadia, one of the largest providers of behavioral health services, has been diversifying into the U.K. as the country's healthcare reform opens the door to the private sector.
Even before the planned Priory acquisition, Acadia operated more than 50 behavioral health facilities in the U.K.
The planned divestiture to BC Partners and the resources applied to the antitrust investigation is contributing heavily to an expected loss from continuing operations of $118 million, or $1.36 per diluted share, for the third quarter of 2016. That compares with income of $29.5 million, or $0.42 per diluted share, for the third quarter last year, Acadia said while giving guidance for next week's third-quarter earnings release.
The U.K. divestiture contributed about $175 million to those losses, which includes a goodwill write-down of $107 million on the facilities being sold, $26 million in transaction expenses and a loss on the sale of the properties of $42 million.
Without those expenses, adjusted income from continuing operations is expected to be $50 million, or $0.58 per diluted share, for the third quarter of 2016 compared with $43.9 million, or $0.62 per diluted share, for the third quarter of 2015.
Revenue in the quarter is expected to jump to about $735 million compared with $479.7 million in the year-earlier quarter.
Jacobs said some of Acadia's U.S. operations performed below expectations as well.
He said same facility revenue grew in the quarter at 6.5% vs. 9.1% in the first half of 2016
”While the growth rate for the third quarter improved from 5.9% for the third quarter last year, it is lower than we anticipated,” he said.