Health Care

A Miami physician services company, whose main investor is Phillip Frost, will be sold for $416 million

Editors note: This story was originally published June 28, 2011, in the Miami Herald.

Continucare, a Miami physician services company, has agreed to be sold for $416 million to Metropolitan Health Networks of Boca Raton, the companies announced Monday.

Michael Earley, Metropolitan’s chief executive, called the deal a great fit. “We both operate in Florida, but in different counties,” he said.

Continucare has clinics in Miami-Dade, Broward and Hillsborough counties. Metropolitan is in more than a dozen other areas, including Boca Raton, Jupiter and Daytona Beach.

The main client of both companies is Humana’s Medicare programs. Together, the companies serve about 68,000 Medicare and Medicaid patients.

Continucare’s largest investor, Miami physician-entrepreneur Phillip Frost, said in an interview Monday that the deal had “such good synergies. This is in the interests of everyone.”

He praised Continucare Chief Executive Richard Pfenniger Jr. and Chief Financial Officer Fernando Fernandez for turning the company around.

“This is a company that had its problems,” Frost said. “The stock was down to 10 cents a share at one time,” about eight years ago.

Under the terms of the merger agreement, Continucare shareholders will get $6.25 in cash for each share. The stock closed at $4.77 on Friday. Continucare investors will also get a fraction of a share of Metropolitan common stock - 0.0414 of a share - for each share of Continucare that they own. On Monday morning, that worked out to about 20 cents per share.

Frost and his close associates own 43 percent of Continucare, meaning they will get about $175 million from the deal. The Frost group has pledged to vote their shares in favor of the merger.

In a conference call with analysts Monday, Earley noted that both of the publicly traded companies started in the early 1990s and both work on the same business model - generally getting a fixed sum per patient from insurers.

Earley said that such bundled payment systems are the wave of the future and are included in parts of President Barack Obama’s healthcare reform law. The systems are seen as less expensive alternatives to the present fee-for-service system in which doctors and hospitals get paid for each service performed.

The combined company will own 31 primary care medical practices and contract with a network of 250 independent primary care practices operating in 18 Florida counties. The company will have about $660 million in annual revenue and about $90 million in earnings before interest, taxes, depreciation and amortization.

On the conference call, an analyst noted that the smaller company, Metropolitan, was buying the larger one, Continucare , when measured by the total worth of their stock, or market cap. Metropolitan’s market cap was at $189 million at mid-day Monday, while Continucare ‘s was at $378 million.

Frost told The Herald that the purchase could have gone either way, but in the end Metropolitan’s acquisition made sense. Continucare‘s leaders have a past of developing companies and then selling them. Before Continucare, Pfenniger and Fernandez built up Whitman Education Group, increasing the total value of its stock by 350 percent, before selling the firm to Career Education in 2003. Frost has developed and sold two major pharmaceutical companies, Key Pharmaceuticals and IVAX.

The Metropolitan deal, subject to shareholder approval, is expected to close before Sept. 30. Fernandez will stay with the new firm during the transition. Pfenniger said Monday he will leave when the deal closes.

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