Shareholders of Apria Healthcare Group Inc. are set to vote this week on one of Orange County’s biggest deals of 2008.
Blackstone Group LP of New York is offering $1.6 billion to take Apria private. The Lake Forest-based home healthcare provider is ending 13 years as one of the county’s larger public companies.
The deal appears likely to go through. Some company watchers had speculated that Apria needed to resolve accounting issues that came up in July before a deal could happen.
Apria said last month that it closed a look into its accounts receivable reserves, concluding that they were $1.5 million higher than they needed to be in the second quarter. It also restated figures for 2007 and the first quarter, none of which had a big impact.
During Apria’s recent conference call, an analyst asked if Apria believed the restatement put the deal at risk.
“We do not believe it rises to that level,” said Chris Karkenny, Apria’s chief financial officer.
Blackstone was aware of the restatement and accounting issues, said Eric Gommel, an analyst with Stifel, Nicolaus & Co. in St. Louis.
Apria provides breathing, drug and other treatments to people in their homes. The company has $2 billion in yearly sales and a market value of $780 million at recent check. (Blackstone’s $1.6 billion purchase price includes the assumption of Apria debt.)
Apria Chief Executive Larry Higby and others declined an interview in the run-up to the shareholder vote.
Higby’s role after Apria goes private isn’t clear yet.
Apria said in a Securities and Exchange Commission filing that neither it nor Blackstone had entered into employment contracts with management.
“I would expect that he continues to lead the company,” analyst Gommel said of Higby.
Apria’s filing refers several times to Higby’s “potential role as an employee of the surviving corporation” and notes that Higby abstained from a vote on the Blackstone deal because of that.
Higby, 63, could end up staying on for a while before retiring.
In September, the Business Journal reported that Higby and longtime friend George Argyros, Apria’s former chairman, could be interested in buying the Orange County Register, whose parent company Irvine-based Freedom Communications Inc. also is owned by Blackstone.
Apria likely is going private as a way to grow outside of investor scrutiny. For most of this year, amid general market turmoil, Wall Street sent home healthcare stocks tumbling at even a whisper of potential government funding cuts.
Apria’s shares were down nearly 20% in the two months prior to the Blackstone offer on investors’ wariness about Medicare possibly lowering its payments.
The company “will continue to be a major player in the home medical equipment industry as a private company,” Gommel said.
If Apria goes private, the remaining publicly traded home healthcare providers will be Lincare Holdings Inc. of Clearwater, Fla.; Nashville, Tenn.-based American Home- Patient Inc.; and Rotech Healthcare Inc., an Orlando company run by former Apria chief executive Philip Carter.
Apria has started to consolidate. It is vacating a 153,238-square-foot industrial building that it leased on Michelle Drive in Tustin and moving the operation closer to its Lake Forest headquarters.
Apria needed a smaller building after moving 80 jobs into its Phoenix and Denver operations, spokeswoman Lisa Getson said.
Apria, which was created in a 1995 combination of Fountain Valley’s Homedco Group Inc. and Costa Mesa-based Abbey Healthcare Inc., came about at a time when home healthcare was seen as a panacea for rising healthcare costs.
The company went through a few years of computer billing glitches and board fights before turning into a solid industry player, even if the grandiose home healthcare hopes of some didn’t realize.
The business has been seen as a cheaper way to care for patients, though reimbursement issues and regulations have tempered initial hype about the sector.
Prior to Blackstone’s offer, Apria had been the subject of several potential sales since 2004, the company’s filing shows.
Morgan Stanley conducted a 2004 targeted auction with 11 potential financial or strategic buyers, one of which was Blackstone. Apria ended up calling off the sale with a provision for reconsideration later.
At the start of 2005, Apria’s board decided to renew and expand the auction process. Its advisers contacted 38 parties, including Blackstone and a company identified as “company A” in Apria’s filing.
That process led to an initial offer from what Apria called a syndicate made up of financial buyers. But a final offer was never realized, the company said.
In 2006, Apria said it received an unsolicited proposal and launched talks with an unnamed strategic buyer, which went as far as to negotiate terms of a deal. But Apria said in the filing that the potential buyer “encountered severe difficulties in its own business and was unable to proceed with the possible transaction.”
In 2007, Apria, after hearing a presentation about strategic and financial options from adviser Goldman Sachs Group Inc., started talks with a company identified as “company B.” Those discussions never progressed, Apria said in the filing, primarily because of uncertainty over Medicare reimbursement and how that could potentially affect company B’s business.
Goldman Sachs then set up meetings with investment bankers and financial investment professionals, including Blackstone, in late 2007, according to Apria’s filing. That then was followed by meetings at an industry conference between Higby and several companies, including company A and “company C,” a financial buyer.
Apria formally engaged Goldman Sachs in January to consider a possible sale. In February, Blackstone traveled to OC to meet with Higby and others to talk about the business, including Apria’s $350 million 2007 deal for Coram Corp., a provider of drug treatments to patients in their homes.
Talks continued throughout the early part of 2008, and a Blackstone representative called Higby on April 13 to let him know that Blackstone would be submitting a formal offer for Apria.
