Blackstone to buy Apria for $1.6 billion

By Kim Dixon

WASHINGTON (Reuters) - U.S. home health-care services company Apria Healthcare Group Inc AHG.N said on Thursday it would be acquired by an affiliate of private equity company Blackstone Group (BX.N) for $1.6 billion.

Apria shareholders would receive $21 cash for each of their shares, a premium of 33 percent over the stock's closing price on Wednesday and a premium of 29 percent over Apria's average closing price for the 30 trading days ended June 18.

On completion of the deal, Apria would become a private company, wholly owned by Blackstone and its affiliates.

A major business for Apria is selling oxygen services; it is heavily reliant on the federal government's Medicare program of health insurance for the elderly and the disabled. The health-care industry is fighting pending cuts in Medicare reimbursement rates and a competitive bidding program enacted by the Bush administration.

"The timing of this announcement is a little surprising, given the day-by-day changes in Washington regarding Medicare oxygen reimbursement," Oppenheimer & Co analyst Michael Wiederhorn said in a note.

The durable medical equipment industry, which includes oxygen services, has sued the federal government over a program that limits the number of suppliers to Medicare recipients.

Rival Lincare Holdings' (LNCR.O) shares rose 7.3 percent to $28.70 on Nasdaq. But some Wall Street analysts expressed doubt that Lincare would become a takeover target, saying the government payment environment would remain shaky despite the support from lawmakers that the industry has garnered.

"There are numerous reimbursement risks on the horizon," Credit Suisse analyst Ralph Giacobbe said. "We don't believe a deal is looming and would remain on the sidelines until we got more clarity," on reimbursement.

Apria shares rose $4.24 to $20.06 in afternoon trade on the New York Stock Exchange.

Standard & Poor's said that because the deal with Blackstone will likely boost Apria's debt load, Apria's credit rating will likely be trimmed from its current BB+ level.

Private equity investment in healthcare service companies took off in 2006 with the leveraged buyout of No. 1 hospital chain HCA Inc.

Other deals followed for nursing homes Genesis Healthcare and Manor Care. Activity has stalled in recent months in line with a general waning of deals with the economic slowdown in the U.S.

Apria's board of directors has approved the agreement with Blackstone unanimously and will recommend that shareholders adopt it.

The transaction, expected to close in the second half of 2008, will be financed through a combination of equity contributed by Blackstone and debt financing committed by affiliates of Bank of America, Wachovia and Barclays Capital.

(Additional reporting by Debra Sherman in Chicago)