Comprehensive Care Corp., the nation's largest provider of alcohol and drug abuse treatment programs, said Monday it plans to restructure into two companies in an attempt to boost earnings and the market value of its stock, both of which have dropped in recent years.
B. Lee Karns, chairman and chief executive officer of the Irvine-based firm, also said Comprehensive Care intends to sell stock in its physical rehabilitation unit, called Rehabcare Corp., when stock market conditions are more favorable. Proceeds from that stock issue will be used to pay down Comprehensive Care's historically high $50-million debt, he said.
Karns said the restructuring, the details of which still have to be approved by the company's board of directors, calls for forming a new publicly traded firm to provide contract services to community hospitals, including treatment for alcohol and drug abuse and psychiatric and eating disorders. The new firm would be named CareUnit Inc.
Comprehensive Care Corp.'s contract services generated about $68 million of the company's $200 million in revenues and about a third of its $12.1-million net earnings in its most recent fiscal year ended May 31.
In a prepared statement, Comprehensive Care said all the shares in the new company will be distributed to CompCare shareholders.
The statement said that "a stockholder of CompCare on the record date for the distribution will be a stockholder in both companies following completion of the distribution."
Comprehensive Care will continue to own the Irvine corporate headquarters and to administer the 26 behavioral treatment hospitals that it owns throughout the country.
The company paid for building 14 of the hospitals within the last five years, which contributed to the enlargement of Comprehensive Care's corporate debt, Karns said. Comprehensive Care will also administer St. Louis-based Rehabcare Corp. until it goes public, he said.
Karns said the company is splitting into business groups with different management styles. "We feel by spinning out in two organizations, each will be able to grow more rapidly and will enhance shareholder value and create substantial new opportunities for the employees of both companies," he said.
Reduction in Staffing
Karns said the new structure is also expected to shave operating costs and permit a reduction in staffing. He said that the reduction will be achieved by not replacing employees who quit or retire and that he does "not anticipate any layoffs" of the company's 4,500 employees, including the 600 in Orange County.
Comprehensive Care is cutting costs, Karns said, in response to curbs being placed on hospital treatment programs by government and private insurance programs.
Restrictions on insurance reimbursement for alcohol and other treatment programs, he said, accounted for the company's setback in earnings, which dropped to $12.1 million in Comprehensive Care's fiscal 1987 from a peak of $17.2 million in fiscal 1985.
The stock market price of Comprehensive Care's stock has also fallen from more than $20 a share in 1985. At the close of trading Monday, the company's stock was selling for $8.75 a share, down $1.875 from Friday's closing price. Trading in the company's stock was suspended for the first 4 1/2 hours after the market opened Monday while the company announced its restructuring plans.
The shares of CareUnit Inc., like those of Comprehensive Care, will be traded in the over-the-counter market, the company said.