Wedding Planning for HEARx and Helix: Unraveling HearUSA, part 7

In May of 2001, HEARx and Helix Hearing Care signed a letter of intent to join together.{{1}}[[1]] http://www.audiologyonline.com/news/news_detail.asp?news_id=295[[1]]  Wedding bells started ringing in June when the bride and groom announced a financing commitment from Siemens Hearing Instruments of upwards of $70 million “if Hearx and Helix meet certain business goals” which were breathlessly outlined in typical HEARx press release fashion: {{2}}[[2]]http://www.audiologyonline.com/news/news_detail.asp?news_id=258 [[2]]

The arrangement provides HEARx and Helix with an opportunity to add an established store base in certain markets where the other is not operating currently, thus facilitating both companies’ nationwide expansion plans. … Helix’s HearUSA network business strategy is consistent with HEARx’s network strategy in its proposed business venture with Siemens and, through the arrangement, allows both companies to launch a national network business on an accelerated timeframe. … The arrangement is expected to permit a reduction in corporate overhead expenses and the achievement of operating efficiencies and economies of scale.

The advisability of the union and its underwriting were mentioned in passing, but these and other warning shots may have received less than adequate attention in the midst of prenuptial planning:

HEARx Before the Merger

• If HEARx and Helix do not successfully integrate their operations, the transaction may not benefit HEARx or Helix. 

•  HEARx has a history of operating losses and may never be profitable. {{3}}[[3]]Unless otherwise referenced, all information and quotes in this post are from http://www.secinfo.com/dsvRq.31A9.htm#ujve [[3]]

Wedding planners know you have to start with a list of guests from both families. The groom’s family was small:  Dr Brown, Friends of Dr Brown, Vice Presidents and Board members, and a few shareholders comprised HEARx (see figure, left).{{4}}[[4]]All figures from http://www.secinfo.com/dsvRq.31A9.htm#ujve [[4]]

Helix Before the Merger

The Bride’s family was a bit more complicated (see figure, right).  Although most stock was in the hands of a few owners,  there were 17 direct and indirect subsidiaries scattered all over the northern hemisphere.{{5}}[[5]]Hearing Care of America SGHCA Inc; Hearing Care of America SAHCA Inc; 3371727 Canada Inc.; Helix Hearing Care of America (U.S.A.) Corp; Helix Hearing Care of America (Ohio) Corp+ 9 more of these Corps for New York, Missouri, Wisconsin, Minnesota, Indiana, Pennsylvania, Arizona, Washington, Michigan; American Hearing Centers, Inc.; Thomas W. Fell Co., Inc.; Auxiliary Health Benefits Corporation/NECP.[[5]]

Of course, premarital counseling is advised to anticipate–if not avoid–future arguments about who’s in charge, joining of assets, weird family members, etc.  The happy couple agreed as follows:

Helix will become an indirect subsidiary of HEARx and HEARx will change its name to HearUSA, Inc. Each share of Helix common stock will be exchanged for 0.3537 shares of HEARx common stock …The board of directors of HEARx shall be composed of Paul A. Brown (Chairman), Steve Forget (Vice Chairman), Stephen J. Hansbrough, Thomas W. Archibald, Joseph L. Gitterman III, David J. McLachlan, Martin Cousineau, Michel Labadie and Mark Wayne.

HEARx After Merger

Weird family members were not mentioned, but we’ll talk about a couple of them in a future post, if only for comic relief.

The complex merger took about 18 months and was finally accomplished in 2002 at a cost of about 2.5 million, financed by Siemens.  At that point, one insider says that the big and immediate goals were to reduce overhead for HEARx,  pay off Helix debt,  and move the HEARx principals into retirement (e.g., Brown and Hansborough).  Judging from the new structure (left) with an extra holding company, all those 17 Helix subsidiaries hiding at the bottom, and HEARx at central command, I’d say early efforts to simplify were not entirely successful.

Stay tuned and we’ll see how the honeymoon went and what happened to other members of the wedding party.

Photo Courtesy DivineCaroline.com