LV hospital operator looks at sale or merger

Monday, Aug. 14, 2000 | 11:20 a.m.

SUN STAFF AND WIRE REPORTS

BRENTWOOD, Tenn. -- Quorum Health Group Inc., the biggest U.S. manager of nonprofit hospitals, said Friday it hired Goldman, Sachs & Co. to explore a possible sale, merger or recapitalization.

In Las Vegas, Quorum contributed its Desert Springs Hospital to a joint venture in 1998 with Universal Health Services Inc. The joint venture, called the Valley Health System, now includes Desert Springs, Valley and Summerlin hospitals.

Quorum is a minority owner of the Valley Health System, which is managed by Universal. The Valley Health System has annual revenues of more than $300 million.

Quorum, which owns 21 for-profit hospitals, said its profit for the fiscal year ended June 30 will fall to 79 cents a share, before special charges for litigation and a federal fraud investigation, from 86 cents a year earlier. Quorum is expected to report fourth-quarter earnings Thursday.

Quorum has struggled with low reimbursements from government and private insurance programs at hospitals it owns and has tried to cut costs and improve bill collection. Quorum management may be seeking a buyer because its biggest investor, Welsh, Carson, Anderson & Stowe, is dissatisfied with progress in turning the company around, an analyst said.

"There was a lot of speculation that those guys would give them a year and that if they didn't see an improvement, they'd be under pressure," said Nancy Weaver, an analyst with Stephens Inc. who has an "outperform" rating on the stock.

Quorum shares rose more than 23 percent last week on speculation that the company is a merger target.

Standard and Poor's Ratings Services placed Quorum on its watch list because it said a recapitalization or sale to a hospital company with a lower debt rating might jeopardize Quorum's debt.

No transaction is likely to occur until a federal fraud case against Brentwood, Tenn.-based Quorum is settled, analysts said.

The U.S. Department of Justice joined a whistleblower lawsuit in October 1998 that alleges the company defrauded federal health-care programs of more than $70 million by keeping two sets of books at its hospitals and claiming higher reimbursement than it was allowed. Lawyers for the company and government are trying to settle the case.

Quorum, which had revenue of almost $1.66 billion last year, could be bought for as much as $18 a share, said SG Cowen analyst Kemp Dolliver, who has a "neutral" rating on the stock. He added that Quorum could attract more buyers if it was sold in parts.

Quorum has a joint venture with HCA-The Healthcare Co. in Vicksburg, Miss., and Macon, Ga.

HCA, the biggest U.S. hospital chain, wouldn't say if it was interested in Quorum, which began as an HCA unit. Quorum became a separate company in 1989 through a management-led buyout.

Universal officials, also rumored to be interested in buying Quorum, weren't available for comment.

Tenet Healthcare Corp., the nation's No. 2 chain, doesn't comment on potential acquisitions, said spokesman Harry Anderson. However, he said any purchase would have to boost Tenet's earnings.

Last week, Health Management Associates Inc. said it didn't want Quorum. Other possible buyers are Province Healthcare Co. and Community Health Systems, which both own rural hospitals, analysts said.

Quorum manages more than 200 hospitals and also had consulting contracts with 137 as of March 31.