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HealthSouth shareholders approve reverse stock split
Birmingham Business Journal - October 18, 2006by Kelli M. DuganStaff
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HealthSouth Corp. CEO Jay Grinney said Wednedsay the company has formally placed its surgery and outpatient divisions on the block - issuing an offering memorandum for each - and expects to begin receiving bids within a week.

Birmingham-based HealthSouth (OTC Bulletin Board: HLSH) is one of the nation's largest providers of outpatient surgery, diagnostic imaging and rehabilitative health-care services.


Grinney's comments came moments after shareholders a special meeting Wednesday approved a 1-for-5 reverse stock split, converting every five shares of outstanding common stock to one share.

The vote to amend the company's restated certificate of incorporation and subsequent relisting on the New York Stock Exchange takes effect Oct. 26. The ticker symbol will be "HLS."

"When we ring that bell, I wish all 36,000 HealthSouth employees could be there ringing it simultaneously with us," said Grinney, adding that the company's employees have "weathered the storm" and enabled the new management to reposition the company.

HealthSouth announced plans in August to either spin off or sell three of its four operating divisions to lower debt and focus exclusively on its inpatient rehabilitation business. The sales or spinoffs of HealthSouth's surgery, outpatient and diagnostic divisions are expected to take at least a year to complete.

Grinney said HealthSouth has received a "tremendous amount of interest" from both financial sponsors and strategic buyers for the underperforming divisions.

Most proceeds from the sale are expected to be used to pay down debt, which was reported to total $3.3 billion as of June 30, 2006.

Grinney called the long-awaited stock relisting the "last step in the recovery" of the rehabilitation giant, which was savaged by a $2.64 billion corporate fraud uncovered in March 2003. Grinney has said in earlier interviews with the Birmingham Business Journal that he believes the fraudulent accounting at HealthSouth began soon after the company was established.

Richard Scrushy, HealthSouth's co-founder and longtime CEO, was fired in March 2003, after FBI agents raided the company's Birmingham headquarters as part of an investigation leading to multiple criminal charges against Scrushy and numerous other HealthSouth executives.

Scrushy was acquitted in a federal criminal trial in Birmingham last year, despite testimony by several former chief financial officers of the company that they - along with several members of the accounting staff - falsified HealthSouth's financial results on Scrushy's orders. Fifteen former employees, including five former CFOs of the company, pleaded guilty to criminal charges in connection with the fraud.

At Wednesday special shareholders meeting, HealthSouth Chairman Jon Hanson called the reverse stock split the latest milestone and a "powerful symbol of the progress we have made as a company."


Hanson said the reverse split will reduce the number of authorized shares of HealthSouth common stock from 600 million to 200 million, a move designed to accomplish the following:

Bring the share price, along with the number of shares of common stock outstanding, to a range more in line with other health-care companies with comparable market capitalization.
Broaden the pool of investors that are interested in investing in HealthSouth by attracting new investors who would prefer not to invest in shares that trade at low, single-digit share prices.
Make the company's common stock a more attractive investment to institutional investors.
Reduce the relatively high transaction costs and commissions incurred by its stockholders due to HealthSouth's current low per-share trading price and high number of shares outstanding.
Illustrate more effectively the impact of the company's operational improvements and cost reductions by enhancing the visibility of any changes in its reported earnings per share.
Grinney told shareholders at the special meeting: "The idea is to bring the number of shares outstanding in line with other health-care companies of comparable size."

Institutional investors and other potential volume buyers of the stock will be more likely to take notice once it is trading in the $20 to $30 range, he said.

Kelli M. Dugan can be reached at [phone] or e-mail her at [e-mail].

http://birmingham.bizjournals.com/birmingham/stories/2006/10/16/daily11.html