IHS to raise cash with RoTech; Unit will be sold or spun off in effort to bolster stock price; Health services


Trying to boost its stock price, Integrated Health Services Inc. will sell or spin off its RoTech division, which analysts said might be worth more than the current market value of the entire company.

IHS, with headquarters in Owings Mills, said it will explore strategic options to get cash out of RoTech, which provides home respiratory services and durable medical equipment.

Robert M. Wasserman, vice president for research at Southeast Research Partners in Boca Raton, Fla., said the two most likely options are to sell RoTech in its entirety, most likely to a company specializing in leveraged buyouts, or to do an initial public offering of a minority interest in RoTech, allowing IHS to raise cash while retaining majority ownership.

The announcement nudged IHS stock upward, after it had reached an all-time low Thursday. The shares yesterday rose 25 cents, or about 3 percent, to $8.3125.

IHS also said earnings that will be reported for the quarter that ended Dec. 31 will be about half of what had been expected, and that the company is taking a $15 million charge in the quarter. Both announcements were made Thursday night. IHS bought RoTech in October 1997 for $858 million in stock and assumed debt.

"It's probably worth about that, maybe a little bit better, because they've grown it," Wasserman said. His estimated value, $1.1 billion to $1.2 billion, far exceeds the market capitalization of IHS, which is $435 million based on yesterday's closing share price.

Jean Swenson, an analyst with BT Alex. Brown, said RoTech could bring $12 to $14 per IHS share, well in excess of the $8.3125 share price for the entire company.

Swenson, who has been maintaining a "buy" rating on IHS, said, "it hasn't been an earnings story for the last six months -- it's an asset story."

RoTech accounted for about $136 million of IHS' $817 million in revenue in the second quarter, according to an analysis last month by Salomon Smith Barney.

The stock price of IHS, which operates more than 300 nursing homes across the country, has slid steadily, along with those of other publicly traded long-term-care companies.

The prime problem is a new Medicare reimbursement system, which moves the per-day nursing home rate toward a national average, rather than reimbursing homes according to reported costs. That has made it difficult to predict earnings for nursing home operators.

"Wall Street likes security and predictability," Wasserman said, "and investors don't want to jump in until things stabilize."

Adjusting to the changes, IHS sold its home health division earlier this month, and its institutional pharmacy operation in October.

Pub Date: 2/13/99

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