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Oxford gets new funds, CEO
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February 24, 1998: 5:56 p.m. ET
Texas Pacific invests, but KKR backs away; Payson will run company
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NEW YORK (CNNfn) - Oxford Health Plans Inc. Tuesday announced a $710 million rescue package, led by a $350 million investment from Texas financier David Bonderman.
In a statement, Oxford said founder and chairman Stephen Wiggins will step down in favor of Dr. Norman Payson.
Payson was president and chief executive of Healthsource Inc. before the company was purchased last year by Cigna Corp. His appointment is effective on completion of the new financing. Wiggins, who will remain on the board, will no longer have an operational role with the company.
Under terms of the rescue plan Bonderman's investment group, Texas Pacific Group, will invest $350 million in Oxford. In addition, Oxford will raise an additional $350 million in debt financing and Payson will personally invest $10 million by purchasing shares of common stock from the company.
Missing from the bailout package is Kohlberg, Kravis Roberts. A spokeswoman for the renowned New York buyout firm said KRR backed out of its plans to invest in Oxford late Monday because of "philosophical differences which led to an inability to agree on certain management terms and conditions."
Oxford, once a high-flying managed care company, has recently stumbled on hard times. Last October, Oxford stunned Wall Street when it disclosed that an upgrade of company computers had delayed the billing of scores of medical claims.
The computer snafu quickly mushroomed into a full-scale legal dilemma, when 5,000 doctors filed legal claims seeking $140 million in back fees they contended Oxford owed them. Oxford countered by denouncing the claims as a "substantial overstatement" of the actual amounts owed.
In January William Sullivan, Oxford's chief executive officer, announced plans to resign, creating a leadership vacuum that has further exacerbated Oxford's woes.
Unable to continue without an infusion of cash, Oxford began to seek a bailout package. After several days of negotiating, Oxford reached an agreement with Texas Pacific under which the investment group agreed to invest in the troubled managed care company in return for up to 22 percent in voting rights.
Following the deal, Texas Pacific will have four seats on Oxford's board.
Analysts were generally upbeat about the financing package but a conference call with Oxford's new management left some investors worried.
"It was not a good conference call," said William McKeever, an analyst at Schroders. "I didn't get any specific information in terms of what their guidance is for earnings and other specifics. So from that standpoint I came away from the conference call thinking that there's still a lot of risk because we don't have any guidance. And from where I sit I think we're going to see continued losses going into 1998."
For the fourth quarter ended in December, Oxford reported a larger-than-expected fourth quarter loss of $284.7 million, or $3.58 a share.
The loss primarily resulted from about $239 million in added reserves for payment of medical costs and about $75 million in write-offs of accounts receivable and additions to valuation reserves. The fourth-quarter results pushed the net loss for 1997 to $291.3 million, or $3.70 a share.
In his statement, Payson warned the company's problems will not be solved quickly.
"Although the challenges facing Oxford are significant and will take time to remedy, I believe we will be successful in re-establishing this company as a national leader in health care,'' Payson said.
"I plan on spending the next 30 to 60 days analyzing, assessing and observing the business and then implementing the turnaround plan with the Oxford management team," he added. "We will be intensely focused on addressing administrative systems and financial issues while concurrently regaining the confidence and support of the medical community. I also plan to actively recruit additional management support."
Bonderman, who helped pulled Continental Airlines out of bankruptcy, is one of the principals in Texas Pacific.
The equity financing is subject to various conditions, including regulatory approvals, completion of the debt financing and expiration of the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Closing is not subject to shareholder approval.
-- from staff and wire reports
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Oxford Health Plans
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