Nu-Med Scraps Plan to Sell 4 Hospitals to New Company

Nu-Med has scrapped a plan to sponsor formation of a new company, to be owned mainly by the new firm’s employee stock ownership plan (ESOP), that would have bought four hospitals from Nu-Med before merging with a third company, Medical Properties.

Nu-Med, based in Encino, said the proposed transaction was dropped because the company was unable to sell debt securities of the new ESOP-backed company to institutional investors. Proceeds from the sales were to help finance the new firm’s proposed hospital purchases, which were announced in January.

Institutions balked at buying the debt securities because there are proposals in Congress to curb the amount of interest income from ESOP debt that institutions are allowed to deduct from their income taxes, Nu-Med said.

Those tax exclusions had made ESOP-related debt, particularly that debt used in financing acquisitions, increasingly popular with investors in recent months.

The deal was intended as part of Nu-Med’s ongoing effort to reduce its debt.

Nu-Med was to have received $122 million in cash and $88 million in notes and preferred stock in exchange for its four hospitals.

In acquiring Medical Properties, the new ESOP company was to have paid Medical Properties’ stockholders $9.66 a share, or a total of about $23 million.

Nu-Med operates several hospitals and other health-care facilities.

Medical Properties, which was formed by Nu-Med in 1986, is a real estate investment trust that owns two hospitals. Medical Properties is also based in Encino.

Nu-Med said it plans to continue restructuring its operations and financial affairs to increase its stock’s value.