Both sides faced prospect of litigation related to proxy fightThe bitter battle for control of Medical Imaging Centers of Americaappears to be headed for a resolution. MICA announced last weekthat it has reached an agreement with a dissident
The bitter battle for control of Medical Imaging Centers of Americaappears to be headed for a resolution. MICA announced last weekthat it has reached an agreement with a dissident shareholdergroup that calls for the settlement of litigation between theparties on the condition that MICA is either acquired by or mergedwith another company.
The fight between San Diego-based MICA and the shareholdergroup, Steel Partners II of New York City, began earlier thisyear when MICA filed a federal lawsuit against the investmentgroup in an effort to foil a takeover bid (SCAN 1/17/96). SteelPartners at the time held 19.7% of MICA stock and had called ashareholder meeting to vote on its proposal to remove MICA's boardof directors. Among other charges, Steel Partners claimed thatit had not been given adequate representation on MICA's boardand that the current board was not delivering enough shareholdervalue. Steel Partners also wanted to eliminate MICA's poison pilldefense.
The dispute came to a head at the shareholders meeting, heldon Feb. 26. Steel Partners claimed to have received 58% of shareholderproxy votes in favor of removing MICA's board. However, MICA wassuccessful in securing a court ruling, which, if it survived appeal,would have resulted in some of those votes being thrown out, accordingto Robert Muehlberg, MICA chairman and CEO. MICA also claimedthat the Steel Partners bloc had exceeded the 20% shareholderlimit that allowed MICA to activate its poison pill defense.
Both sides therefore faced a protracted legal battle to sortout claims and counterclaims, and decided that a settlement wouldbe in their best interests.
"Both sides have spent an extreme amount of managementtime and capital in this proxy fight, and that would have continued,"Muehlberg said. "The reason we settled was to give the companytime to put together a transaction that is beneficial to shareholders.This will prove what we've been saying all along, which is thatthis board is not trying to entrench itself."
According to the agreement, all litigation between the partiesis settled and Steel Partners has dropped its proxy fight. MICAhas agreed to order the redemption of outstanding shares issuedwhen the poison pill defense kicked in. MICA's board will havethree months to find a partner to either merge with MICA or acquireit. If it fails to announce a partner by June 19, or consummatea transaction by Nov. 19, the current members of MICA's boardwill step down and be replaced by designees of Steel Partners.
The agreement does not explicitly require MICA's board to stepdown in the event of a sale or merger. Any deal put together wouldrequire Steel's approval, however, due to its large stake in MICA.Steel Partners spokesperson Daniel Burch declined to say whetherthe group will seek the current board's removal if a merger orsale is proposed.
"Whatever the new deal is, we will consider it at thattime," Burch said. "One of our goals is to make money.If MICA is sold at a profit we think is fair, we would supportthat."
The settlement will free MICA's hand in pursuing a partner,Muehlberg said. Even before the Steel Partners battle, MICA believedthat the imaging center industry was ripe for consolidation andthe company was pursuing imaging center acquisitions. The settlementwill simply put MICA in a slightly different position.
"Everyone in the industry is aware of the consolidationthat needs to take place," Muehlberg said. "We had hopedto be one of the consolidators in this industry, through businesscombinations and acquisitions. If we are not the acquirer, westill want to take part in the consolidation."
Richard Zehner, president and CEO of Alliance Imaging of Orange,CA, believes that pricing will be the operative factor in whetherMICA can successfully negotiate a transaction.
"It depends on how realistic the sellers are," Zehnersaid. "If MICA is priced competitively, the odds of sellingit are probably pretty good. If it is priced at seven times cashflow, they'll never get it sold."
Zehner said Alliance is interested in looking at a possiblepartnership with MICA, although he admits that Alliance will bejust one of many firms eying MICA.
MICA does not plan to restrict its search to the imaging centerindustry, according to Muehlberg. The company will also look forpartners in the broader healthcare market, such as a hospitalchain, or even a vendor partner like GE Medical Systems, whichhas taken a large preferred stock position in InSight Health Services,the entity formed by the merger of Maxum Health and American HealthServices (SCAN 3/13/96).
"I don't want to limit (companies that) would be a goodmerger partner or acquirer," Muehlberg said.