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W.R. Grace to spin off health firm


Choosing what it regarded as the best option for investors, W. R. Grace & Co. said yesterday it would spin off its subsidiary, National Medical Care Inc., to Grace shareholders in a tax-free transaction.

The decision to spin off the nation's leading supplier of kidney-dialysis products and services came after the Grace board of directors rejected two other options.

One was a merger proposal for the subsidiary from Vivra Inc., a rival dialysis company; the other was a $3.5 billion bid for the company from Constantine L. Hampers, a Grace executive vice president and co-founder of National Medical Care who was passed over last month for the post of Grace chairman.

"A spinoff works better as a maximum generator of shareholder value than the sale of the asset," said Albert J. Costello, who was named Grace's chairman, president and chief executive instead of Mr. Hampers.

Because Grace would have faced capital gains taxes of nearly $1 billion if it agreed to a sale of National Medical, Mr. Costello had been leaning toward a tax-free spinoff of the subsidiary ever since Mr. Hampers made his unsolicited offer May 4.

In the past year or more, big institutional shareholders had been strong advocates of a spinoff. They saw it as a way to give the Boca Raton, Fla.-based Grace an opportunity to focus on its packaging and chemicals businesses.

Mr. Hampers made his bid only days after Mr. Costello, the former chief executive of the American Cyanamid Corp., was named chief executive May 1. Until then, there had been few indications that Grace was actively considering getting rid of the business. Last year, the unit posted revenue of $1.9 billion.

The June 9 merger proposal by Vivra involved several alternative financial structurings. But in combining the operations, it would have created a company with nearly 30 percent of the market and would have allowed Grace shareholders to keep a majority stake in the firm.

Mr. Hampers, who soon after making his bid had threatened to leave if Grace rejected his offer, will remain National Medical Care's chairman and chief executive after the spinoff. In a statement yesterday, Mr. Hampers said that "while this transaction differs from the one I proposed last month, the benefits to NMC are similar."

Mr. Costello said he expected the spinoff, to be accomplished through a special stock dividend to holders of Grace common stock, to be completed in October.

As part of the transaction, National Medical is expected to pay Grace a special one-time cash dividend of about $1.4 billion, which Grace said it expected to use to reduce debt "substantially."

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