The ups and downs of acquisitions

   I always find it curious when a public company announces a big acquisition and its stock price rises, while the target company's stock price falls.

   That's what happened Monday when Universal Health Services Inc. agreed to buy Psychiatric Solutions Inc. for $2 billion in cash, plus the assumption of $1.1 billion in debt.

   Shares of King of Prussia-based Universal Health climbed $3.10, or 8 percent, to $42.14 on Monday, while shares of the Tennessee-based operator of psychiatric facilities dipped 24 cents, or 1 percent, to $32.39.

   Isn't that the opposite of what you'd expect?

   Universal Health offered $33.75 per share in cash for each share of Psychiatric Solutions, which was only $1.10 higher than its highest closing price in the last 30 days. So no share-price pop for Psychiatric Solutions.

   Getting the chance to double a key part of your business with one transaction is obviously something top managements dream about. But why were investors so enthusiastic knowing that Universal Health would need to take on new debt to do so?

   Universal Health has lined up loans through JPMorgan Chase & Co. and Deutsche Bank A.G. totaling $4.15 billion to acquire Psychiatric Solutions and refinance existing debt. For comparison's sake, Universal Health's market capitalization is $3.8 billion.

   If reality didn't exactly sink in Tuesday, the credit-rating agencies did, sinking their teeth into what a higher debt load will mean for the firm.

   The Big Three of Moody's, Fitch, and Standard & Poor's said they were reviewing Universal Health for possible downgrade, meaning that the company could lose its investment-grade rating.

   That downward rating pressure exerted force on the shares of Universal Health, which dipped by 39 cents, or 1 percent, to close at $41.75.

On the move

   There are leases getting signed in suburban office and industrial parks. It's just that many of them look like the one that inTest Corp. signed recently.

   The maker of testing equipment used by semiconductor manufacturers is trading its existing 80,000-square-foot headquarters and manufacturing site in Cherry Hill for 54,897 square feet in the East Gate Business Center in Mount Laurel.

   InTest said the new 123-month lease would cut its annual operating expenses by about $250,000 per year. That's much needed because the company has been in restructuring mode since early 2008.

   Sales have fallen over the last three years since they reached $62.3 million in 2006. Last year, sales were just $23.5 million.

   According to its annual report, the company had implemented "temporary salary reductions in 2008 and 2009." After reporting higher revenues during the fourth quarter of 2009 and a return to profitability, inTest restored the salaries of its domestic workers as of Jan. 1.

   InTest had 107 full-time employees as of Dec. 31. That was down from 224 at the end of 2006.


Contact Mike Armstrong at 215-854-2980 or

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