Apria Explores Possible Sale

LAKE FOREST, Calif.–The nation’s largest home medical equipment
provider has confirmed it’s on the block.

Last week Apria Healthcare officials said the $1.45-billion
provider has retained investment banking firm Morgan Stanley to
consider potential offers. According to the New York Post,
insiders have speculated those offers could be as high as $2.5
billion.

Apria CFO Amin Khalifa said the move could draw interest from
private investment firms as well as other types of “publicly held
companies that would find our business a good complement to
theirs.” He added that “Morgan Stanley is soliciting bids so we
don’t leave any stone unturned.”

Company shares jumped by more than 16 percent Tuesday after the
Post published an article about the possible sale. Soon
after, Apria released a statement confirming the news.

“The company is in a strong financial condition, has an
excellent management team and considers its prospects to be very
good,” Apria Chairman David Goldsmith said. “Accordingly, no
decision has been made to proceed with a sale, and the board of
directors may conclude that shareholder interests are best served
by remaining an independent, publicly owned company.”

Nevertheless, Khalifa said that Apria would be able to implement
planned changes more quickly as a private company. “We have systems
that could still be improved upon,” he said, noting that the
provider is bringing on a new chief information officer to upgrade
its business processes (see HomeCare Monday, May
16).

“We’re seeking to more rapidly process an order and the
collection of that [order],” he said, pointing out that the upgrade
will be implemented regardless of what happens. But, he continued,
“It’s always a little more complicated when you’re doing [the
upgrade] and still trying to hit every penny with every quarter’s
earnings. You can do it a little faster as a private firm.”

Apria, which provides respiratory therapy, home IV and HME
through 475 branches in 50 states, is also exploring other
cost-control and productivity initiatives. The firm recently
brought in UPS’ consulting arm to streamline its routing and
delivery operations, and “we’ve reduced the number of routes within
the last six months,” Khalifa said. “Our drivers spend less time
driving and more time servicing customers. Delivery windows are
tighter all the time.”

While the company said Medicare reimbursement cuts and a
decision not to renew its Gentiva CareCentrix contract last year
had affected earnings, officials were generally optimistic after
the first quarter, estimating revenue growth for 2005 in the 5
percent to 6 percent range.

According to Arthur Henderson, a research analyst who follows
Apria for Jefferies & Co., New York, the company “has long been
undervalued” mainly due to its large managed care business, which
he said generally produces smaller margins than business from
Medicare. He said the time might be ripe “for a financial buyer to
straighten operations and then bring it back public when the
business can be appropriately valued.”