American HomePatient wants to leave 'spotlight'

BRENTWOOD, Tenn. - With $226 million in debt hanging over its head, American HomePatient (AHP) announced last week that it seeks to avoid bankruptcy by going private.

It's a move that could give AHP, which has been struggling for years, the freedom it needs to try and turn itself around, says Bob Leonard, an analyst with The Braff Group, a Pittsburgh-based mergers and acquisition firm.

"When you're a public company, there are so many constituents-public shareholders, debt holders," he said. "You're not really free to do some things that may need to be done, like close some branches and sell off pieces. This way, they eliminate the spotlight, and they can re-package and re-arrange things unencumbered."

Pending stockholder approval on June 21, AHP plans to reincorporate in Nevada. Then Dallas-based Highland Capital Management, which already owns about 48% of the provider's stock, plans to buy out its remaining stockholders for 67 cents per share and restructure its debt into two four-year secured loans.

Analyst Rick Glass says Highland probably has something up its sleeve-he's just not sure what.

"This would seem to be a likely precursor to them making some changes in what they're doing," said Glass, president of Steven Richards & Associates, a Tarpon Springs, Fla.-based M&A firm. "They're not going to spend the money to buy the stock, otherwise."

Highland Capital has tried to buy AHP before: In 2006, it made an unsuccessful bid to buy the provider for about $59 million or $3.40 per share. With stocks trading at 58 cents per share and a market capitalization of $10.16 million in early May, stockholders have little choice but to take the hedge fund up on its second offer, industry watchers say.

"If I were a stockholder, I wouldn't be complaining, because I think the company is worth less than the debt it holds," Glass said.

Another reason for stockholders to support going private: If they don't, AHP will likely file for Chapter 11 and "the outcome for existing stockholders in any bankruptcy would be highly uncertain," the provider stated in a release.

"It's a thinly veiled threat," Leonard said. "It's kind of like they're saying, 'It's 67 cents, take it or leave it, and if you don't take it, we'll file for bankruptcy and you probably don't get anything.'"

Although hedge funds and private equity firms typically like to get in and get out, AHP and Highland Capital's longer-than-usual relationship represents a new reality, at least in the HME industry.

"It's a real quandary, because it's a great business, and it's not going anywhere from a demographics standpoint, but it has a huge cloud over it due to competitive bidding and the oxygen cap," Leonard said. "Until that cloud goes away, for many investors, the best strategy is to continue to own the company and make a little bit of money each month, because the market doesn't allow for that big payday right now."

AHP would join Apria Healthcare as a private company. Only two of the four national HME providers are still public: Lincare and Rotech.