Health Images and MedAlliance disputepayment in imaging center acquisition

Health Images claims center revenue fell short

Health Images and MedAlliance are at loggerheads over the sizeof a contingent payment Health Images agreed to make as part ofits purchase of 15 MedAlliance imaging centers. The dispute willnot affect the status of the transaction, which has already beencompleted, but the conflict could go to arbitration if the firmscannot agree on a resolution.

Health Images of Atlanta bought the centers late last yearin a deal valued at $65 million (SCAN 1/18/95). As part of thepurchase agreement, Health Images agreed to make a contingentpayment to MedAlliance, of Brentwood, TN, of up to $8.25 millionbased on the financial performance of the centers from Jan. 1to March 31.

In a form filed with the Securities and Exchange CommissionJune 30, Health Images claimed that the centers had not met thefinancial performance targets set for them based on data submittedby MedAlliance. MedAlliance believes the centers met the targetand that it is owed the full $8.25 million.

The two companies are in negotiations under the terms of adispute resolution mechanism included in the acquisition agreement.If the two sides do not reach an accord, the conflict will goto arbitration before a firm of independent certified public accountants.

The MedAlliance conflict is the second dispute Health Imageshas had this year in connection with an acquisition. In February,Health Images filed suit against the former owners of NationalDiagnostic Systems (NDS), charging that NDS shareholders misrepresentedthe financial health of the company when HI acquired it last year(SCAN 3/15/95). Health Images ultimately took a non-recurringasset impairment charge of $6.1 million in its 1994 results relatedto closing the NDS operation.

A Health Images spokesperson said the MedAlliance dispute isnot an indication that Health Images is having second thoughtsabout its imaging center purchase.

"We're glad we did the acquisition, and we are glad wehave the centers," the spokesperson said. "We are sayingthat based on our review of the data we don't owe the entire $8.25million."

MedAlliance CFO Terry Bryant said his company believes thatthe financial performance of the centers was in line with projectionsat the time the sale was negotiated.

"The calculations and information that we have providedto (Health Images) is accurate and very much in line with therepresentations made in the agreement," Bryant said.

MedAlliance believes that Health Images may not have had timeto review the data before a deadline that would have cut off HI'sright to object to the size of the payment. Health Images mayhave filed the objection to gain time while it reviews the data,Bryant said.