St. Michael’s auction results in two companies to battle for parent company status

Anjalee Khemlani//November 6, 2015

St. Michael’s auction results in two companies to battle for parent company status

Anjalee Khemlani//November 6, 2015

No decision was made on the new parent company for Saint Michael’s Medical Center in Newark, but two companies emerged as qualified bidders for the health facility: Prime Healthcare Services and Prospect Medical Holdings.Both are California-based companies.

A memo to employees of Saint  Michael’s reads:

“Over the course of the auction both bidders remained very active. 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. Saint Michael’s and its advisors, along with the Creditor’s Committee, worked tirelessly to encourage the bidders to put forward not only the best monetary offers, but also to improve the terms of the asset purchase agreement towards assuring the long-term viability of Saint Michael’s. At the conclusion of the auction, Saint Michael’s was in possession of two very attractive and outstanding offers.

By design and with the agreement of all parties, a decision was not reached yesterday. The decision rests with the Board of Directors which has the fiduciary obligation to do what is in the best interest of all stakeholders. In order to provide for that consideration, a meeting is scheduled for Monday, November 9. During the meeting, both proposals will be reviewed and both bidders have been invited to make presentations. The Board will have the opportunity to ask questions and gain more understanding of the bidders’ interests and intent. The Board will then deliberate and, after consulting with the Creditor’s Committee (per bankruptcy protocol), will select who they deem to be the best partner for Saint Michael’s to continue to serve the Greater Newark community.”

After being forced into Chapter 11 bankruptcy protection in August, when the state did not sign off on the sale of Saint Michael’s to California-based Prime Healthcare which had been under review for more than two years, Prospect and Prime emerged as two prospective buyers.

U.S. Bankruptcy Court Judge Vincent Papalia ruled that bids for Saint Michael’s must meet or beat Prime’s offer — which is $49 million, in addition to investing $25 million in the facility and keeping it open for five years.

According to court documents, Saint Michael’s Medical Center has worked with all of its vendors and third-party affiliates to square away all the necessary details to ensure a sale can go forward – regardless of who it is sold to.

But the medical center also filed for a liquidation extension on Nov. 3, requesting a delay until next April.

“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, in a statement from the Save Saint Michael’s Medical Center Coalition. “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.”

Prospect Medical Holdings is owned by Leonard Green & Associates, one of the largest private equity firms in the nation, which also owns BJ’s Wholesale Club, Lucky Brand jeans and Petco, the Coalition said in a statement. “Unlike Prospect, Prime Healthcare is owned by medical professionals who have a track record of turning financially ailing hospitals around in communities served by minority residents.”

Prospect Medical Holdings may be put up for sale, valued at approximately $1 billion, by Leonard Green & Partners, according to a Dow Jones article Friday.

Newark Central Ward Councilwoman Gayle Chaneyfield Jenkins has been vocal about the sale to go forward with Prime, and called for the state to back down as a potential bidder last month.

“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 in a statement.

In addition, Chaneyfield highlighted recent news from Prospect’s Waterbury, Conn. Hospital purchase where a 10 percent cut in pay was forced on doctors, and a 5 percent cut for unionized employees.

The issue of pay cuts will soon be addressed according to a statement from Prospect to NJBIZ.

“Prospect is in negotiations to acquire Waterbury Hospital but does not currently own or control it. The decision to make the wage cuts was taken by the hospital’s leadership team to address Waterbury’s current financial situation. Prospect has agreed (in coordination with Waterbury Hospital) to restore the wage cuts when the transaction is completed,” Prospect said.

Prospect Medical Holdings is also currently working through the purchase of East Orange General Hospital.

In a statement to NJBIZ, Essex County Executive Joseph DiVincenzo Jr. said, “East Orange General Hospital has a long history of providing medical and emergency care to our residents and, naturally, we are always cautious when changes occur in our local hospital network. We are closely watching how the sale to Prospect Medical Holdings is proceeding and look forward to East Orange General continuing to serve the residents of Essex County.”

After the presentations Monday, a court hearing to approve the sale to the selected company will be held Nov. 12.