American Shared deal may be delayedEmbattled imaging services provider U.S. Diagnostic of West PalmBeach, FL, took drastic action this month in an effort to containthe damage resulting from revelations about the past of one ofits mergers and
American Shared deal may be delayed
Embattled imaging services provider U.S. Diagnostic of West PalmBeach, FL, took drastic action this month in an effort to containthe damage resulting from revelations about the past of one ofits mergers and acquisitions consultants. The actions includedthe temporary departure of USDL founder Jeffrey Goffman, who wasplaced on administrative leave pending an investigation by a specialcommittee formed by USDL's board of directors.
USDL has been embroiled in a public relations nightmare sincelate December, when analysts at investment house Bear, Stearns& Co. announced that they had discovered USDL mergers andacquisitions consultant Keith Greenberg had pleaded guilty tofraud charges in 1994 (SCAN 1/8/97). The revelations sparked severalshareholder lawsuits against USDL, charging that the company'sstock was inflated because Greenberg's background had not beenrevealed.
Greenberg was a major contributor to USDL's remarkable rise toprominence in the imaging services industry, providing USDL withconsulting services on acquisition prospects through his firmCoyote Consulting. USDL officials have stated that Greenberg wasneither an employee of USDL nor an officer, but he was listedin the company's 1995 annual report as a co-founder and directorof marketing, mergers, and acquisitions. USDL terminated its relationshipwith Greenberg last month.
The listing of Greenberg in the annual report has landed USDLin hot water with some of its shareholders. In addition, the Securitiesand Exchange Commission and NASDAQ stock exchange officials havebegun inquiries into the relationship between USDL and Greenberg,and whether the company's disclosures were in compliance withfederal securities laws.
To prevent the situation from spinning further out of control,USDL on Feb. 3 announced several actions the company describedas "draconian." Chairman and CEO Jeffrey Goffman wasplaced on administrative leave by the company's board, along withUSDL's general counsel, Michael Karsch. The board elected HEICOpresident and CEO Laurans Mendelson as chairman, while USDL presidentand COO Joseph Paul was named interim CEO.
Mendelson's connection to USDL comes through HEICO, which soldits MediTek imaging services subsidiary to USDL last year (SCAN6/19/96). Paul was MediTek's president at the time.
The board also announced the formation of a special committee,consisting of Mendelson and two other outside directors, to reviewUSDL's relationship with Greenberg and Coyote Consulting. Thespecial committee was given authority to take disciplinary actionwith respect to USDL officers and employees.
In a conference call announcing the changes, Mendelson said USDL'sboard decided to take the actions to isolate those USDL executiveswho had been associated with Greenberg, while investigating thenature of his association with the company.
"The special committee and the board have elected to carveout the problem of Greenberg/Coyote and the related matters, putit to the side, and give it to a special committee of the board,with very capable independent counsel, to dig into that wholeproblem, but to excise it from the operations of the company,"Mendelson said.
Both Mendelson and Paul emphasized that the affair is not expectedto affect USDL's operations, and the company will continue topursue acquisitions in the pipeline, such as proposed deals withAmerican Shared Hospital Services and Advanced NMR's Medical Diagnosticssubsidiary (SCAN 2/5/97). Most of USDL's proposed acquisitionsinvolve cash, with the exception of the American Shared deal,which involves stock.
Nor should future acquisitions suffer from the loss of the CoyoteConsulting relationship, as USDL has built an internal capability,headed by MediTek veteran Randy Sklar, to identify acquisitionprospects, according to Paul.
Recent events at USDL have delayed negotiations with AmericanShared, however, ASHS reported last week. The two sides reportedFeb. 11 that they have not yet entered into a definitive mergeragreement, nor have the terms of the transaction been presentedfor formal approval by each company's respective board of directors.USDL and American Shared both said that while they were interestedin pursuing the deal, there can be no assurance that the agreementwill be consummated.
If the deal did fall through, it would not be the first time aproposed USDL acquisition did not take place: The company calledoff talks with Alliance Imaging last year after a drop in USDL'sstock price made the deal less attractive (SCAN 9/11/96).