Accipiter Capital continues its opposition to VistaCare, Odyssey Healthcare merger

By Lisa Kerner

Charlotte, N.C., Feb. 13 - VistaCare, Inc. shareholder Accipiter Capital Management and its affiliates reaffirmed their opposition to the planned acquisition of the company by Odyssey Healthcare, Inc. following a review of VistaCare's quarterly report for the period ended Dec. 31.

Odyssey offered to acquire VistaCare for $8.60 per share, or $147.1 million, in a deal Accipiter called "wholly inadequate." Accipiter previously suggested that the company could be valued at $11.50.

The investors, with a 10% ownership interest, asked the board in a letter to explain inconsistencies between VistaCare's internal analysis of its restructuring and information VistaCare's management disclosed to investors.

Specifically, Accipiter cited management's failure to mention during the Dec. 11 quarterly conference call that the benefits of the restructuring would not be realized as soon as initially projected. Fiscal 2008 projected financial targets may be lower than forecasted as result. VistaCare's board knew of the information in November, the investor claimed.

The investor said it was troubled by other actions recently taken by management, including:

• VistaCare waited to disclose that the company was behind on the restructuring until Jan. 30, more than two months after disclosing it to the board;

• VistaCare failed to hold a conference call to discuss the acquisition or December quarter results; and

• VistaCare's chief executive officer will receive severance payments of about $1.73 million, three times his current salary, plus benefits if the merger is completed and management is not retained.

"As this is a strategic acquisition, we anticipate Odyssey will seek to achieve cost savings by reducing redundant management. So who stands to gain the most if Odyssey acquires VistaCare - VistaCare's stockholders or its management who will be handsomely rewarded if terminated?" Accipiter asked.

Accipiter urged fellow shareholders not to tender their shares in connection with the acquisition. Should the tender offer and merger be completed, Accipiter wants shareholders "to exercise their appraisal rights to the full extent permissible under law," according to an Accipiter news release.

"It is clear to us from the 10-Q that VistaCare significantly outperformed analyst expectations for the first quarter - reporting EBITDA of $2.2 million and earnings per share of $0.09 versus analysts' estimates of $1.6 million of EBITDA and earnings per share of $0.05," Accipiter's letter said.

Accipiter believes VistaCare's results would be even higher considering VistaCare's corporate restructuring activities during the quarter, with the full benefits not yet fully reflected in the company's operating results.

In closing, Accipiter maintained that "VistaCare would be significantly more valuable as a standalone company with new management more capable of effectuating a timely turnaround."

On Feb. 8, VistaCare responded to a prior letter from Accipiter by urging its shareholders to review the quarterly earnings release for the first fiscal quarter ended Dec. 31.

In addition, shareholders were advised by the company to review VistaCare's schedule 14D-9 filed with the Securities and Exchange Commission on Jan. 30 in order to evaluate the "validity of certain assumptions" made by Accipiter.

Odyssey HealthCare reaffirmed its commitment to complete the $8.60-per-share tender offer for VistaCare in a separate statement.

As previously reported, the tender offer, which began on Jan. 30, is set to expire at midnight ET on Feb. 27.

Odyssey agreed to acquire VistaCare for $147.1 million in a deal set to close in the first quarter.

Both VistaCare and Odyssey are hospice care providers. VistaCare is located in Scottsdale, Ariz., and Odyssey is based in Dallas.

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