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Apria Wants to Drop Plans for Acquisition

Health care: Falling stock price puts a damper on the Costa Mesa-based company's desire to buy the privately held Miami hospice operator.


COSTA MESA — Apria Healthcare Group Inc., reacting to its slumping stock price, said Wednesday that it wants to drop plans to buy Vitas Healthcare Corp. of Miami.

The Costa Mesa-based home health-care giant would focus instead on boosting the revenue and profit in its basic business--a source of disappointment for analysts since the merger last year of two Orange County companies that formed Apria.

Wall Street also got cold feet over the company's plans to buy the privately held Miami hospice operator, which had a loss of $2.8 million last year on sales of $231 million.

Apria's stock tumbled 37% to $19.375 a share on the New York Stock Exchange in the months following the company's June 6 announcement of plans to buy Vitas. But the stock has recovered a bit, and closed Wednesday at $20.25, up 87.5 cents.

Apria's agreement to acquire Vitas for $212 million in cash and stock contained a provision giving either company the option of calling off the deal if Apria's stock is less than $22.125 the day before the transaction closes. The acquisition was expected to be completed sometime this month.

Apria had agreed to pay $70 million worth of stock as part of the deal, meaning it would have had to issue more shares because of the company's declining stock price. Analysts said the combination of the two companies would have also depressed Apria's earnings, further diluting the value of the company's stock.

Apria said Wednesday that it was discussing alternatives to a merger, including some other business relationship, but would not elaborate. Vitas wouldn't comment.

Recently, analysts have expressed concern over problems in Apria's basic home health business, stemming at least in part from the rocky merger last year of Orange County-based rivals Homedco Group Inc. and Abbey Healthcare Group Inc.

Apria's announcement in late September that earnings this year might run as much as 8% below analysts' estimates proved an unpleasant surprise on Wall Street. The company said sales growth had been slower than expected because of problems encountered in setting up computer systems to meld the former Homedco and Abbey operations.

A report issued in late October by analysts at Alex. Brown in Baltimore indicated problems were continuing. "We remain cautious on Apria's outlook until we have better earnings visibility," the report said.

The analysts also hinted then that they would prefer that the company keep its acquisition program "on hold," noting that the Vitas merger wasn't a "done deal." At that time, Apria was still maintaining publicly that it planned to proceed with the deal.

Though analysts say there's some logic to combining businesses that would serve a patient's need for home health care and hospice services, Peter Emch of Alex. Brown said Wednesday that Apria's core business "merits full attention at this point."

Thomas Snow, analyst with Buckingham Research, said Apria had hoped Vitas would make money next year, which could cover the costs of borrowing cash required to complete the deal. "As Vitas' operating results deteriorated, it appears they couldn't cover it," Snow said.


Stock Socked

When Apria announced its June merger with Vitas Healthcare, its stock was trading above $30. Before recovering a bit recently, the price sank below $20, prompting Apria to announce that it might cancel the deal. Weekly closing prices and Wednesday's final price:

Wednesday's close: $20.75

Source: Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times

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