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Apria loses half its board
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May 28, 1998: 12:31 p.m. ET
Troubled home health-care firm to abandon search for strategic partner
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NEW YORK (CNNfn) - Four months after a house-cleaning in the executive suites at the nation's largest home health-care company, nearly half of Apria Healthcare Group Inc.'s boardroom has also been cleared.
The trouble-plagued Costa Mesa, Calif.-based company late Wednesday disclosed five out of its 11 directors will resign from the board. Additionally, Apria has decided to forego its strategy of seeking a merger partner or major equity investment.
"At the current time, we must focus on righting the company rather than looking externally for solutions," said Ralph V. Whitworth, Apria's third chairman in five months.
Shares of Apria (AHG) were down 1-5/16, or 14 percent, at 7-11/16 in midday trading on the New York Stock Exchange.
The developments represent the latest chapter in the tumultuous history of Apria -- a home health-care provider formed by the merger of Abbey Healthcare Group and Homedco Group in 1995.
Shortly after the deal was signed, evidence of a marriage gone-awry began to surface when Abbey's former chief executive Timothy Aitken resigned in the wake of disagreements with his Homedco counterpart, Jeremy M. Jones, who was put in charge of the combined entity.
Analysts familiar with both companies attributed the problem to management issues as well as board dissension.
"The reason I downgraded two years ago was initially the companies could cut costs. But what we found disturbing was we still didn't see acceleration on the top line," said Helen O'Donnell, an analyst at PaineWebber, who has rated the stock as a "neutral" since 1996.
As cost-cutting leveled off, Apria's revenue growth stalled out at $1.18 billion in 1996 and 1997. Meanwhile, the company's cost structure actually increased with added hiring in order to process the rising accounts receivables on sales that were booked. As a result, losses swelled.
Aitken unsuccessfully tried to regain control of the company in October 1997 when his new company, Transworld HealthCare Inc., teamed with ex-Salomon Brothers trading legend Lewis Ranieri on a $18-a-share offer for Apria.
By January 1998, Jones threw in the towel, stepping down as chairman and chief executive. He handed the reins over to his friend George L. Argyros, an Orange County developer who was Apria's largest shareholder at the time with 2.7 million shares, or 5.4 percent of the stock.
Argyros conducted a search for a strategic partner. With the help of financial advisor Goldman Sachs, Apria received a $242-million recapitalization plan from an investment group, including Canadian Imperial Bank of Commerce and Joseph Littlejohn & Levy, a New York-based investment firm.
But when Joseph Littlejohn & Levy began to back away in March, that proposal fell apart. Argyros was replaced by Whitworth, who is a principal and managing member of Relational Investors LLC. The San Diego, Calif.-based investment firm is now Apria's largest investor with 5.1 million shares, or about 9.9 percent of outstanding shares.
In addition to the resignations of Argyros and Jones, Apria said Terry Hartshorn, a Homedco-designated director, and two Abbey-designated board members, Frederick S. Moseley and Vincent M. Prager also stepped down from the board.
A nominating committee will immediately begin a search for qualified candidates for the board, the company said.
At least one nominee is expected to be someone endorsed by Franklin Mutual Advisors, the company's second-largest shareholder with 4.4 million shares, or 8.6 percent of outstanding shares.
Shareholders will elect new directors at the company's annual meeting, to be held at the Apria corporate headquarters on July 28. Shareholders of record on June 8 will be eligible to vote.
-- by staff writer Robert Liu
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Apria
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