IHS suitors reach a deal

THI would run chain, Briarwood would own it

Snow created time to think

Proposal needs OK of bankruptcy court

February 25, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

Trans Healthcare Inc. and Abe Briarwood Corp. - rival bidders for Integrated Health Services Inc., the bankrupt Sparks-based nursing home chain - have reached a deal in which Briarwood would acquire IHS' buildings and THI would lease and operate them, Anthony Misitano, THI's chief executive officer, said yesterday.

If approved by the bankruptcy court, the deal would pave the way for THI, now based in Camp Hill, Pa., to move to IHS' Sparks office and operate the company.

The accord between the two companies came on the eve of a hearing tomorrow in U.S. Bankruptcy Court in Wilmington, Del., where THI was to have challenged Briarwood's deal to buy IHS. Yesterday, THI filed a motion with the court withdrawing its earlier objection and supporting the Briarwood deal.

"We will continue to operate a pretty big company out of that site, which will continue to grow," Misitano said. He said he was not yet sure how many IHS employees - there are about 650 in Sparks and 39,000 nationally - would remain, because THI's deal with Briarwood does not include IHS' Symphony rehabilitation subsidiary.

In December, THI, which already operates 94 nursing homes, agreed to buy IHS out of bankruptcy - both the Symphony rehabilitation unit and 180 nursing homes in 25 states - for $97.5 million in cash and the assumption of $230 million in liabilities.

Last month, however, Abe Briarwood submitted a higher bid to the bankruptcy court that was accepted by IHS and approved by its creditors' committee. Briarwood, newly incorporated in Nevada, is backed by Cammeby's International Ltd., a New York commercial real estate company.

But THI objected, saying the Briarwood bid did not comply with the court's rules.

That objection was to have been heard by the court Feb. 7, but the hearing was postponed because of snow.

Had the weather been clear that day, Misitano said yesterday, "the potential for protracted litigation would have been high."

"Timing is everything, and it [the delay] gave everybody more time to think about what was best for everybody," he said.

Briarwood was interested in owning buildings, Misitano said, but needed someone to operate them. THI wanted to operate the buildings, and would have been looking to sell some - many are already leased from other owners - to help finance its deal. "This scenario turns out to be a very good deal," he said.

THI will lease the Sparks headquarters and the Briarwood-owned buildings at market rates, Misitano said. The rates reflect the fact that Briarwood, not THI, would be responsible for any lingering liability claims against IHS.

IHS grew rapidly in the mid-1990s through aggressive acquisitions. Its revenue increased from $195 million in 1992 to $3 billion in 1997.

It financed the buying spree with $3 billion in debt. After the federal government cut its Medicare reimbursements, IHS was unable to keep up its payments and it filed for Chapter 11 reorganization three years ago. During bankruptcy, the company sold some nursing homes and spun off its respiratory therapy division, Rotech Inc. Still, it had $1.1 billion in revenue for the year that ended Aug. 31, according to filings with the bankruptcy court.

Privately held THI does not disclose its revenue or earnings.

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