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PhyCor-MedPartners Merger Falls Through; MedPartners CEO Resigns After Stock Crash

MANAGED CARE February 1998. © MediMedia USA
News and Commentary

PhyCor-MedPartners Merger Falls Through; MedPartners CEO Resigns After Stock Crash

MANAGED CARE February 1998. ©1998 Stezzi Communications

Bad days in Birmingham: MedPartners lost its trophy dance partner, PhyCor, when the two physician practice management companies nixed their proposed nuptials. In the days that followed, MedPartners stock

lost nearly half its value, the PPM was hit with at least three class-action lawsuits and, to cap it, CEO Larry House resigned.

Richard M. Scrushy, chairman and CEO of HealthSouth, the medical rehabilitation PPM, was named chairman and acting CEO of MedPartners. He remains with HealthSouth and will relinquish his MedPartners roles when a permanent CEO is chosen.

PhyCor's planned acquisition of MedPartners, announced last October, died during "due diligence." In terminating their merger plan on Jan. 7, the companies chalked it up to differences in corporate culture. But The Wall Street Journal quoted insiders as saying MedPartners's aggressive acquisition strategy had strung the company too thin financially; when PhyCor discovered this, it unsuccessfully attempted to renegotiate the deal.

The next day, MedPartners stock dropped 45 percent, igniting investor worry about the stability of its finances. The PPM announced it would incur $145 million in special charges unrelated to the merger. Lawsuits, including one charging MedPartners with overstating revenue to make it more attractive to PhyCor, soon followed.