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NOVACARE TO ACQUIRE REHABILITATION COMPANY

 KING OF PRUSSIA, Pa., June 22 /PRNewswire/ -- NovaCare, Inc. (NYSE: NOV), an industry leader in medical rehabilitation services, today announced the signing of a definitive agreement to acquire Rehabilitation Hospital Corporation of America.
 Rehabilitation Hospital Corporation of America (RHCA) provides comprehensive medical rehabilitation services through a network of five inpatient hospitals (265 licensed beds) and three outpatient medical rehabilitation clinics in the Mid-Atlantic states and the upper Midwest. The company will open four additional outpatient clinics in 1993. RHCA's strategy has been to purchase and develop hospitals and satellite outpatient facilities to serve smaller cities in states requiring certificates of need.
 "With the RHCA acquisition we take another step in (1) providing a continuum of rehabilitation services on a local and national basis and (2) enhancing NovaCare's position as a low cost provider of quality patient care," said Francis W. Cash, president and chief operating officer of NovaCare. "RHCA delivers quality patient care and meaningful clinical outcomes at costs that are substantially lower than the industry average."
 "The addition of RHCA's five hospitals to NovaCare's seven offers significant opportunity for consolidating our hospital management and infrastructure," said Mr. Cash. "We also plan to extend to our existing hospital system RHCA's model for outpatient clinics which serve higher acuity patients at a relatively low cost."
 "Despite the uncertainty in the healthcare regulatory environment, we believe that the rehabilitation hospital will continue to play a pivotal role in the continuum of rehabilitation care," noted Mr. Cash. "Again and again, studies have demonstrated that early rehabilitation intervention at high acuity levels materially enhances the quality of life and reduces the total cost of health care. Moreover, we have long felt that the acquisition of established facilities with proven management in smaller, protected markets is the lowest cost means of building such a system. We expect to continue pursuit of this strategy and maintain hospital revenues within a range of 20 to 30 percent of total revenues."
 "Medical rehabilitation is a $20 billion industry which is conservatively expected to grow 10 percent per year over the next few years. While most of NovaCare's growth is internally generated, in January we raised $170 million in the debt market in order to take advantage of expanding acquisition opportunities in the changing health care market," added Mr. Cash. "We will continue to seek well-managed companies in our existing businesses, including contract services, orthotics and prosthetics and rehabilitation hospitals, as well as in other attractive segments of the medical rehabilitation industry."
 RHCA is a closely-held corporation whose principal investors are venture capital partnerships controlled by Foster Management Company under the leadership of John H. Foster, chairman and chief executive officer of NovaCare. Foster Management occasionally serves as a business development vehicle for NovaCare. Accordingly, in evaluating the transaction, a special committee of NovaCare's board of directors engaged Davis Folk & Wardwell as independent counsel for the transaction and Smith Barney, Harris Upham & Co. as financial advisor. Smith Barney has rendered to the special committee a fairness opinion on the RHCA acquisition. Lehman Brothers, Inc. acted as financial advisor to RHCA and rendered a fairness opinion to its board.
 Under the terms of the agreement, NovaCare will pay approximately $31 million in cash for the equity of RHCA and will pay down investor debt and redeem preferred stock totaling approximately $20 million. The transaction, which will be accounted for as a purchase, is expected to close in early July.
 Commenting on the impact on NovaCare's income statement, Mr. Cash said that there would be no effect in the company's fourth quarter because the acquisition is expected to close after the end of the quarter. He also stated that the transaction should add slightly to earnings per share in fiscal 1994.
 RHCA's five freestanding medical rehabilitation hospitals are located in Princeton, West Virginia; Parkersburg, West Virginia; Richmond, Va.; Salisbury, Md.; and Southfield, Mich. RHCA also operates three outpatient medical rehabilitation facilities in Virginia and Michigan and has plans to open four additional outpatient facilities in Virginia and West Virginia in 1993. The company is based in the Philadelphia area.
 NovaCare, Inc. is the largest provider of contract medical rehabilitation therapy and orthotic and prosthetic patient care services in the United States. In addition, the company operates seven acute rehabilitation hospitals containing 454 licensed beds and six community rehabilitation programs.
 -0- 6/22/93
 /CONTACT: Susan J. Campbell, director of investor relations, of NovaCare, Inc., 215-992-7425, or Anthony J. Russo, Ph.D., of Noonan/Russo Communications, Inc., 212-979-9180, for NovaCare, Inc./
 (NOV)


CO: NovaCare, Inc.; Rehabilitation Hospital Corporation of America ST: Pennsylvania IN: HEA SU: TNM

LD-OS -- NY078 -- 4730 06/22/93 17:21 EDT
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Date:Jun 22, 1993
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