MAMSI stock rises on anticipated change Chief's possible firing, or a sale, stir interest

Health care

November 07, 1998|By Kristine Henry | Kristine Henry,SUN STAFF

Shares of Mid Atlantic Medical Services Inc. rose nearly 22 percent yesterday on news that the Rockville-based company's

chairman and chief executive might be fired.

The company announced late Thursday that the board of directors was split in a recent vote on whether George T. Jochum should continue to lead the HMO operator. A cryptic statement by the company said that there is "a dispute as to whether the board of directors' vote operates to terminate Mr. Jochum's employment." A company spokeswoman declined to give further details and Jochum was not taking calls.

MAMSI shares gained $1.8125 to close at $10.125 in trading of 620,400 yesterday, almost six times its three-month daily average.

Wall Street's positive reaction means investors think one of two things will happen, said Joel Ray, an analyst at Wheat First Union in Richmond, Va. Either a new team will be brought in to turn the company around, or it will be sold.

"There's a potential for change, and Wall Street thinks the change could be positive," Ray said.

For the second quarter, MAMSI, which insures more than 1.7 million people, reported earnings of $3.6 million, or 8 cents a share, up from the $2.7 million -- 6 cents a share -- for the second quarter of 1997. Third-quarter results will be released next week and analysts are expecting to see 10 to 11 cents per share.

"The stock probably hasn't made as much of a recovery as others," Ray said, "and there has not been as much progress in earnings as could occur."

Scott & Stringfellow analyst George F. Shipp said Jochum, who was named chief executive in 1989 and chairman in 1990, led the company to significant growth in the mid-1990s.

"As it got to be a billion-dollar company, there were management challenges that were very difficult. I'm not trying to point a finger at George Jochum, but the company hit a plateau," Shipp said. "There's a restlessness on the part of everybody as to what's the best way to take this company to the next level."

Jochum's base salary was cut 25 percent in 1997 to $1.38 million when MAMSI's net earnings went from $61 million in 1995 to a net loss of $2.77 million in 1996, according to the company's proxy statement. In his latest contract, which took effect Jan. 1 and runs through December 2001, Jochum's base salary was trimmed to $1.35 million. He also agreed to an amendment of his employment contract that barred him from receiving a bonus in 1998, according to the company's 10-K filing.

MAMSI had net earnings of $14.5 million in 1997.

While analysts say MAMSI's earnings have been disappointing, it is by no means alone.

HMOs have been slow to raise premiums for competitive reasons, but haven't been able to stop the increase in costs for doctors, hospitals and prescription drugs. Publicly traded managed-care companies reported an average operating loss of tTC 0.8 percent for the most recent reporting period, according to Pulse, an industry newsletter.

Pub Date: 11/07/98

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