IHS deal to buy Coram canceled Tax loss issue ends firm's plan to acquire company, analysts say


Integrated Health Services of Owings Mills said yesterday that it is pulling out of its agreement to buy Coram Healthcare Corp. of Denver, the country's largest provider of home intravenous drug therapy, for more than half a billion dollars.

"This does not signal a change in strategy," said Marc B. Levin, executive vice president of Integrated. "We are still committed to expanding our home health network. This is just a transaction that didn't get completed."

Integrated declined to provide the reasons for canceling the deal. Last fall, the company agreed to pay $598 million in stock and assumed debt. Last week, the parties agreed to cut the price to $559 million.

"Continuing requests by IHS to make changes to the original and amended merger terms eventually led Coram's board of directors to believe that further negotiations were no longer in the interests of Coram's shareholders or the company," said Donald J. Amaral, Coram's president and chief executive officer.

The two companies still haven't decided whether Integrated Health will have to pay a cancellation penalty of $17.5 million, plus expenses.

Coram said Integrated dropped the acquisition in part because of a disagreement concerning litigation over Coram's 1995 acquisition of a Caremark International Inc. unit.

Analysts said the deal may have faltered on whether Integrated could account for it in a way that would let it carry Coram losses forward from previous years for tax purposes.

"Integrated wanted to structure it as a pooling of interest, so they would get to keep the tax loss going forward," said Robert M. Wasserman, vice president for research of Southeast Research Partners in Boca Raton, Fla. "It would make the deal much more advantageous. But over time, apparently, they became less and less comfortable they would be able to do that."

The Coram acquisition was announced in October, and appeared to be an important piece of Integrated's strategy to move from post-hospital skilled nursing services to a full array of rehabilitation and home-health treatments.

Offering a range of services makes it easier for Integrated to get and manage contracts from managed-care insurers who pay the company a flat rate to provide care for patients leaving hospitals. Under the flat-rate system, if the company can move a patient from a skilled-nursing home to lower-cost home care, it stands to make more profit.

The week before the Coram deal was announced, Integrated completed its purchase of First American Health Care of Brunswick, Ga., a large provider of home-health care. First American had about $400 million a year in annual revenue and Coram had $532 million. Integrated had $1.4 billion in revenue in 1996.

Integrated is expanding its services and growing rapidly even without the Coram deal. Integrated has about 1,000 service locations in 40 states. It will still be the largest provider in the country of post-hospital services, Levin said. Without Coram, it will be the fourth-largest home-health provider; with Coram, it would have been the second-largest.

"This is not a change in Integrated's strategy -- they need to continue to go after home health businesses," said D. Scott Mackesy, an analyst at Dean Witter Reynolds in New York. "In order to complement the large base of home nursing business they acquired with First American, they need to build up home infusion and respiratory therapy services."

Integrated's shares jumped $2 yesterday, to $29.75, after the news. Coram shares lost half their value, closing at $1.75.

Wasserman, who follows both companies, said the jump in Integrated price reflected a concern that Coram would cut into profits. "It was looking pretty dilutive for IHS, at least in the short term," he said. "Coram was confident they could turn it around, but for now, it was losing money."

"There's certainly less risk in Integrated's earnings stream without Coram," Mackesy said. However, he added, the jump in Integrated's share price and rapid fall of Coram's was tied to investors who sell short on a company making an acquisition, and need to buy stock to cover their short positions when the deal collapses.

Levin said cancellation of the deal would not affect Integrated's employment in Maryland. Integrated has about 850 employees in Owings Mills and Woodlawn. The firm reportedly plans to develop a new headquarters campus on a 150-acre business park in Sparks.

Pub Date: 4/08/97

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