Deep in Red, Anaheim’s Alliance Imaging Plans IPO, Debt Security Sale
Heavily indebted Alliance Imaging Inc., a major diagnostic imaging company acquired 15 months ago by buyout specialist Kohlberg Kravis Roberts & Co., is planning an initial stock offering to raise as much as $172.5 million.
The Anaheim company, which is awash in debt, also would raise an additional $150 million by selling debt securities, according to a document it filed Friday with the Securities and Exchange Commission.
Alliance said it plans to use the proceeds from the offerings to repay $260 million in loans taken on in the November 1999 Kohlberg Kravis merger. The remainder of the proceeds would be used for general corporate purposes, including repayment of other debts, according to the document.
Alliance, which had been a small publicly traded company before the merger, did not disclose the number of shares it intends to offer or the estimated price per share.
The company faces a “very, very anemic” market for initial public offerings, said Tom Madden, a partner at online research firm IPO Monitor. Investors are taking a harder look at new issues in light of the slower economy and the plunge in technology stocks, he said.
Since the beginning of the year, 43 companies have withdrawn their initial public offerings, he said. Only four went public in January, compared with 16 the previous January, Madden said.
Kohlberg Kravis, the world’s largest buyout firm, made headlines in the 1980s for major acquisitions involving huge amounts of debt.
And indeed, Alliance piled up $759 million in long-term debt by the end of December, including $466 million in loans under a credit agreement. The total long-term debt has risen from $470.4 million two years ago.
The company is so burdened by debt that its liabilities exceeded its assets by $203.8 million at the end of December, leaving shareholders with a deficit to cover, the filing states.
The company also is the target of a federal investigation into allegations that it had submitted false claims to federal health-care insurance programs, the filing disclosed. The probe began in August as the company was dealing overbilling problems in Massachusetts.
Kohlberg Kravis acquired 91% of Alliance for $320 million in cash and the assumption of $537 million in debt. Kohlberg Kravis’ portfolio includes the Safeway Inc. supermarket chain and the nation’s largest theater group, struggling Regal Cinemas Inc., as well as Primedia, the publisher of Seventeen and New York magazines.
Alliance operates mobile trailer units and some permanent offices with diagnostic imaging equipment, mainly magnetic resonance imaging (MRI) machines. The company caters to hospitals and other health-care providers in 43 states.
Demand for MRI, computerized tomography (CT) scans and other diagnostic imaging services has been booming, driven by physicians who see these procedures as effective, noninvasive tools for detecting ailments.
In 1999, MRIs accounted for more than 25% of the estimated $90 billion diagnostic imaging industry, which has been experiencing double-digit growth, according to National Imaging Associates, a manager of radiology services for large health-care plans.
Alliance saves health-care providers the cost of the equipment, which could become obsolete unless upgraded, the filing said. It also saves the providers from having to apply for regulatory licenses.
The MRI business accounts for 91% of Alliance’s revenue, the filing said.
Kohlberg Kravis took over Alliance as the imaging company was enjoying its biggest growth spurt. Its 1998 revenue had nearly tripled to $243.3 million and grew 30% to $318.1 million the following year. Sales edged up 8.6% more last year to $345.3 million.
But it also paid for that growth--and its acquisition--with losses of $43.5 million in 1999 and $2.2 million last year.
To resolve overbilling issues in Massachusetts, the company said in its filing that it expects to pay a total of about $2.7 million to the National Heritage Insurance Co., to a state health-care program and to the U.S. Department of Defense.
The company said it also could face fines or penalties from the federal government. A Justice Department investigation “is still ongoing and we are uncertain how the results of this investigation will affect our business,” the company said.
The company has hired Deutsche Banc Alex. Brown, Salomon Smith Barney, J.P. Morgan and UBS Warburg LLC to underwrite the stock sale. The company will apply to list shares on the New York Stock Exchange, the filing said.
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Bloomberg News was used in compiling this report.
