Prospect Medical Holdings, one of two bidders for Saint Michael's Medical Center, is owned by a leveraged buyout firm that announced Friday it was putting Prospect up for sale in a deal that could fetch as much as $1 billion.
The timing of the announcement couldn't have come at a worst time for Prospect, which emerged as an eleventh-hour bidder for the Newark hospital in bankruptcy court.
Prospect is owned by Leonard Green & Partners, one of the nation's largest private equity firms, which specializes in buying companies and selling for large profits. The Los Angeles-based firm also counts BJ's Wholesale Club, Lucky Brand jeans and Petco among their holdings.
On Friday, Leonard Green told LBO Wire, a Dow Jones & Co. subscription-based publication that covers the leveraged buyout industry, that it had hired investment bank Morgan Stanley "to review and assess additional sources of investment into the company's overall growth strategy."
Prospect was established in 1996 and was taken private by Leonard Green in a $363 million deal in 2010, according to LBO Wire. At the time, Prospect operated five California hospitals and provided health maintenance organization-related services, according to LBO Wire.
In 20102, Prospect merged with private health-care company Nix Health, a unit of Merit Health Systems LLC , and runs 13 hospitals in California, Texas and Rhode Island, according to LBO Wire.
LBO Wire noted Prospect has been on a buying spree, entering talks to purchase the Eastern Connecticut Health Network and Greater Waterbury Health Network Inc., which includes Waterbury Hospital. Prospect closed on a deal in May to buy East Orange General Hospital and in October, it purchased Pennsylvania's Crozer-Keystone Health System, according to LBO Wire.
Saint Michael's previously reached an agreement for a sale to Prime Healthcare Services three years ago, but the deal has been delayed by the administration of Gov. Chris Christie.
The delay forced Saint Michael's to seek a Chapter 11 reorganization in U.S. Bankruptcy Court, which opened the door to Prospect and other bidders. Barnabas Healthcare and the state had expressed an interest, but ultimately did not participate in Thursday's auction.
Both Prime and Prospect are scheduled to appear before Saint Michael's board of directors on Monday, where they will present their offers and answer questions. The board will then decide between the two companies and U.S. Bankruptcy Court Judge Vincent F. Papalia will hold a hearing on Nov. 12 to finalize the auction. The winning bidder would still need approval from the state Attorney General's Office as well as the Department of Health.
In a memo to employees, Saint Michael's executives said they were pleased with the auction, which resulted in "two very attractive and outstanding offers."
"Over the course of the auction both bidders remained very active," the memo said. "This serves as testament to the great interest both parties have in acquiring Saint Michael's and validates that Saint Michael's is essential to the Greater Newark community."
While the hospital board has not indicated which company it favors, members of a grass roots organization, the Save Saint Michael's Medical Center Coalition, urged the board to support the offer from Prime. The organization previously delivered 50,000 signatures from the community supporting the sale of the hospital to Prime.
"We urge the board to do the right thing and pick Prime," said the Rev. Ronald Slaughter, a co-chair of the coalition and senior pastor of Saint James AME Church. "Prime has demonstrated its commitment to our community for the last three years and has stuck with this process even though the state has unnecessarily dragged its feet."
Members of the coalition said they have researched Prospect's record extensively and came to the conclusion that Newark residents would be better off with Prime.
"Prospect Medical Holdings is owned by a leveraged buyout firm that doesn't care about our community," Slaughter said. "When buyout billionaires are interested in a hospital in Newark, you have to ask yourself why? They can’t possibly have our best interests at heart."
Central Ward Councilwoman Gayle Chaneyfield Jenkins, who has been leading the effort to save Saint Michel's, called for the hospital's board to select Prime.
"Our community knows Prime and we trust Prime because they have been committed to purchasing Saint Michael's, investing $25 million in the facilities, and preserving 1,400 jobs," Chaneyfield Jenkins said, noting that the City Council passed two resolutions supporting the sale to Prime.
Chaneyfield Jenkins noted that at Waterbury Hospital, doctors were forced to take a 10 percent cut in pay while unionized employees were forced to take a 5 percent cut in pay as a condition of the Prospect's acquisition.
"Prospect Medical Holdings has a record of slashing pay for the hard-working union employees in their hospitals." Chaneyfield Jenkins said. "The company is clearly not friendly towards unions or doctors."