Shareholder loses interest in buying AHP

Monday, July 31, 2006

BRENTWOOD, Tenn. - A week before American HomePatient's June 7 annual stockholders meeting, Highland Capital Management quietly withdrew its offer to buy the company and seek a seat on its board of directors.
Highland, which owns nearly 10% of AHP's stock, may have been "scared off" by a competitor's dismal first quarter earnings for 2006, industry watchers say. In April, Rotech saw its shares drop to $6.30 due to a reimbursement cut for one of its primary respiratory drugs, compounded budesonide. (At press time, the company's shares had dropped further, to $3.74.)
"(Highland) basically said, 'We're out,'" said healthcare consultant Schuyler Hoss. "If you're an investor group looking at American HomePatient, you're going, 'Hmm, same industry, big belly flop. Do I want to put my money into something like that?'"
AHP's shares have also taken a hit. They were trading at $1.55 at press time, down from $3.50 in April. The company blamed reimbursement cuts for inhalations drugs and oxygen for a $1 million drop in revenues for the first quarter of 2006 compared to the same quarter in 2005.
Despite the hit to AHP's revenues, another shareholder, Accipiter Capital Management, increased its shares in the company in June, from just over 5% to just over 6%, according to an SEC filing (see story page 30).
Highland outlined its intentions to buy AHP for $3.40 per share in a letter in February. In the letter, Highland criticized AHP's management for its "over-leveraged balance sheet" and its inability to "successfully navigate the challenging Medicare reimbursement environment."
AHP responded in May, stating a "willingness to consider" an acquisition by any party. To help it do that, AHP retained UBS Securities as its financial adviser.
But in a May 30 SEC filing, Highland stated that, "based on advice received and due diligence, it is not the right time to move forward with the acquisition." However, the shareholder didn't rule out the possibility of purchasing or selling shares and "pursuing discussions with regard to their investment."
"It's hard to say what the ultimate deterrent was," said Tyson Graygor, an analyst with Provident Healthcare Partners, an investment banking firm in Boston. "However, it is not uncommon for issues to come up during the due diligence process, whether financial or otherwise, that sidetrack a deal."
In another filing, Highland withdrew its nomination of Patrick Daugherty, its head of special situations investing, for election to AHP's board of directors. The shareholder also decided not to pursue changing the company's bylaws for its annual stockholders meetings.