EMS Falls After Sale to Clayton, Dubilier & Rice Fails to Meet Expectation

Emergency Medical Services Corp. shares fell the most in almost two years after the company agreed to be bought by private-equity firm Clayton, Dubilier & Rice LLC for $64 a share, less than some investors expected.

EMS shares declined $7.74, or 11 percent, to $62.92 at 4:12 p.m. in New York Stock Exchange composite trading, for the biggest drop since Feb. 27, 2009. Before today, the stock had risen 31 percent since Dec. 13, the day before the company said it was considering strategic alternatives.

“I had expected the range to be between $70 and $75,” said Jeff Hoernemann, an analyst with Feltl & Co. in Minneapolis, in an e-mail. “The final price is certainly a disappointment to some shareholders.”

Stockholders of EMS, the largest U.S. operator of ambulance services and provider of emergency-room doctors, will receive $64 a share in cash, the companies said in a statement today. That’s 9.4 percent below the closing price of $70.66 on Feb. 11 on the New York Stock Exchange, and 19 percent above the closing price Dec. 13, the day before the Greenwood Village, Colorado- based company said it was looking at strategic alternatives.

Recent acquisitions by EMS may have affected the price paid for each share in today’s deal, said Hoernemann. EMS announced purchases of Milford Anesthesia on Dec. 2; Doctor’s Ambulance Service on Dec. 6; Blythe Ambulance services on Jan. 5; and North Pinellas Anesthesia Associates and Northwood Anesthesia Associates, a company based in Tampa, Florida, on Jan. 11.

Value ‘Above $70’

“Most analysts and investors alike would agree that based on the pure operational potential of the company in 2011 you could easily value it above $70,” Dawn Brock, an analyst with Kaufman Bros. in New York, said yesterday in an e-mail.

Directors had pushed for higher bids from Clayton Dubilier and runner-up Bain Capital LLC. Goldman Sachs Group Inc. and Bank of America Corp. advised EMS. Barclays Capital, Deutsche Bank Securities Inc., Morgan Stanley & Co., RBC Capital Markets and UBS Investment Bank acted as financial advisers to Clayton Dubilier.

The deal’s $3.2 billion total includes net debt as well as transaction costs of about $300 million, EMS said in a statement today. The company had $934.3 million in liabilities as of Sept. 30, according to Bloomberg data.

Onex Corp., whose group had 31 percent interest in EMS, will sell their 13.7 million EMS shares for $878 million as part of the deal, the Toronto-based company said in a separate statement.

Thomas Franco, a spokesman for New York-based Clayton Dubilier, referred comment to EMS. EMS spokeswoman Deborah Hileman didn’t return calls requesting comment.

Health-Care Overhaul

The U.S. health-care overhaul passed last year, designed to give millions of uninsured Americans taxpayer-subsidized medical coverage, made EMS an attractive takeout target, Arthur Henderson, an analyst with Jefferies & Co. in Nashville, Tennessee, said yesterday in a telephone interview. The company’s ambulance and emergency staffing and management units may both profit from the expanded coverage, he said.

“There’s money to be made in making all of this more efficient and that would be appealing to any private equity buyer,” he said. “I expect to see a lot more consolidation in health services, nursing homes, and long-term care. The number of competitors is going to get smaller and the ones that survive are going to get bigger.”

Private-equity firms had announced 397 pending or completed acquisitions of U.S. health products and services companies in the past five years, with an average size of $449.4 million and a typical premium of 30 percent, according to data compiled by Bloomberg as of Feb. 10. The biggest was the 2006 leveraged buyout of hospital operator HCA Inc. for about $33 billion, led by firms including New York-based KKR & Co. and Bain, which is based in Boston.

Health Deals

Private-equity firms, which raised $50 billion to $80 billion for health industry deals from 2006 to 2010, “have very deep pockets right now and will be looking to do more deals in this space,” Brock said in a telephone interview yesterday.

“Unless you believe there will be a wholesale repeal of health reform, which I don’t think anybody does, there will be some scenario where there are more covered bodies and more paying customers than you have right now,” Brock said.

EMS’s ambulance unit had 2009 revenue of $1.34 billion and its emergency physician business reported 2009 sales of $1.23 billion. EMS may have generated 2010 revenue of $2.86 billion, according to the average estimate of 10 analysts surveyed by Bloomberg. The company today said it planned to file 2010 results later this month.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Elizabeth Lopatto in New York at elopatto@bloomberg.net

To contact the editors responsible for this story: Reg Gale in New York at rgale5@bloomberg.net; Jennifer Sondag in New York at jsondag@bloomberg.net

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