Kirschner alters merger plans

July 14, 1992|By Liz Bowie | Liz Bowie,Staff Writer

Kirschner Medical Corp. jilted one suitor yesterday and began courting another, a large health care company that would end up owning 57 percent of Kirschner stock under a proposed merger.

In an action that apparently surprised some investors and analysts, the Timonium orthopedic company broke off merger negotiations with Henley International Inc., then said it would buy Sutter Corp., a subsidiary of Columbia Hospital Corp., based in Fort Worth, Texas.

Kirschner would pay for Sutter by issuing common shares of stock to Columbia, which would have a majority interest in Kirschner.

"I'm in shock. I kind of feel like the groom that got stuck at the altar," said Peter M. Graham, executive vice president of Henley, who was to meet Kirschner officials in Houston yesterday to complete a merger agreement.

Instead, Kirschner telephoned Henley executives before working hours yesterday to say the deal was off, Mr. Graham said.

A proposed merger with Sutter Corp. of San Diego was better, said Kirschner Chief Executive Officer C. Scott Harrison, because it left Kirschner independent, with the same management and greater growth opportunities. In addition, Kirschner and Columbia shareholders would be largely unaffected by the arrangement.

"I think it is a very different deal than with Henley. . . . This is the purchase of a synergistic company that I think will allow Kirschner to grow more rapidly," he said.

Sutter, with revenue of $25 million last year, is best known for its continuous passive motion device, which is strapped to a leg after surgery to help move the muscles back in place and help a knee heal more quickly.

Kirschner, with income of $4.2 million last year on $71.2 million in sales, makes replacement joints, including knees and hips, and wires used by surgeons to reconnect broken bones.

"We think it is a good fit," said Stewart J. Campbell, corporate comptroller with Columbia. "They have complementary products and services." Columbia, which expects to have $1 billion in revenues this year, operates 13 acute-care hospitals and two psychiatric hospitals, and is scheduled to merge with Basic American Medical Inc. today.

Shortly after the announcement, Kirschner stock fell to $7.25 but rebounded to close at $9 a share, as the market adjusted to the idea, said Jeffrey Morris, an analyst with Josephthal Lyon & Ross of New York. Columbia Hospital stock was barely affected. It closed at $16.50, down 25 cents.

"This is certainly very strange," Mr. Morris said of yesterday's turn of events. "It may turn out to be a bold and interesting move."

If the agreement goes through, Kirschner would be left in a stronger financial position, with much more equity to balance its $45 million of debt, he said. "Maybe in the eyes of the bank, they will look like a better credit risk."

The deal is subject to a definitive agreement, the approval of Kirschner's stockholders, and other conditions.

However, Columbia has made no promises to make any of Kirschner's debt payments to Maryland National Bank, to which $10 million is due in September. Dr. Harrison said he is confident he can negotiate "a resolution" to the debt payments with Maryland National.

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