Smith Laboratories, a publicly traded San Diego-based medical equipment manufacturer, has agreed to merge with closely held Columbia Hospital Corp. of Ft. Worth and seven of Columbia's affiliated companies in a tax-free exchange of stock.
Smith shareholders will receive one share of stock in the entity, also named Columbia Hospital Corp., in exchange for one share of Smith Laboratories stock. In total, Smith shareholders will own 25% of the new entity's stock at the completion of the merger, which is expected to be made final by April 30, pending shareholder approval.
Columbia Hospital Corp. owns and operates acute-care hospitals in Texas and Florida and is controlled by Richard Rainwater and Richard Scott. As a principal with the Bass Brothers investment firm, Rainwater helped that firm build a $6-billion portfolio before leaving to start his own company in 1986.
In existence only two years, Columbia Hospital Corp. is expected to generate revenue of $130 million in 1989, Smith Laboratories President Tim Wollaeger said. Columbia would become a publicly traded company by virtue of the merger with Smith, he said.
Smith's only operating unit, a wholly owned subsidiary called Sutter Corp., makes continuous motion rehabilitation equipment for orthopedic patients. The subsidiary posted revenue of $13 million last fiscal year. In addition, the parent company has assets that include $39 million in cash and total liabilities of $14 million.
Wollaeger was hired as Smith Laboratories president in September, specifically to consider business options for the company. Wollaeger said he selected the merger with Columbia because of its solid growth prospects, the reputations of Rainwater and Scott, and because Columbia is in an industry he understands.
By trading their $39 million in cash and their Sutter subsidiary in exchange for the 25% equity interest in Columbia, Smith shareholders are "getting involved in hospitals with a good group of people" with aggressive growth plans.
"I just didn't think we could invest ourselves in something like biotechnology and wait years for a home run," Wollaeger said.
Wollaeger previously was an executive with Hybritech, a San Diego biotechnology manufacturer, and a principal with Biovest, a San Diego venture capital firm. He said he will become a board member at the new Columbia Hospitals while remaining chief executive of the Sutter subsidiary.