AHP attracts investor interest

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Sunday, March 31, 2002

BRENTWOOD, Tenn. - American HomePatient is still wallowing in red ink, but there are signs of life at the struggling national.

The most intriguing news is that in February, Putnam Investments, expressing some confidence in AHP's potential, purchased 6.9% of the company's stock, which at the time was trading at about 45 cents a share. Also in February, AHP reported that while it lost about $11.5 million in 2001, it turned a profit of nearly $500,000 in the fourth quarter. The company lost $24.2 million in 2000.

Word that Putnam acquired a sizeable chunk of stock is a good sign because it shows the investment community sees investing potential in AHP. Until now, there has been no real controlling interest in the company to help fuel a turnaround, and pressure from Putnam could force management to perform, said Schuyler Hoss, president of Northwest Healthcare Management in Vancouver, Wash.

Unlike Apria, which dug itself out from under a pile of billing and integration problems, AHP has made only incremental progress in solving its billing, inventory, pricing and other challenges. (With the company showing no signs of a solid turnaround, speculation was circulating that management may have been intentionally bleeding the company to take it private once investors give up on it - and then make a killing when they put the improved AHP back on the market. Putnam seems to let the air out of that theory.)

Company officials did not return phone calls, but industry watchers can see the allure AHP holds for institutional investors. Investors see a company with $350 million in revenue, an $8 million market capitalization (compared to Lincare's $2.7 billion and Apria's $1.2 billion) and a mountain of debt that eats up all its profits. Then they ask if it could ever become the next Apria or Lincare.

"The company has a lot of value, but interest is eating up all the earnings" said M&A expert Dexter Braff of the Bethel Park, Pa.-based The Bragg Group. "It's a financing issue as opposed to a referendum on the quality of the business. It has excellent earnings generating capacity. People misinterpret that frequently." HME

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