WEST ALLIS, WI – Merge Healthcare might have found the financial backing needed to keep the medical imaging company out of bankruptcy, but it comes with a high price tag.
The West Allis, Wis.-based company, which numbered at least 600 employees as of Sept. 30, 2007, will trim 60 jobs to reach the 300-employee mark in a reorganization plan announced last month. Four of the company’s top executives have resigned and overseas subsidiaries have been sold off, and officials expect to take more than $9 million in charges this year to cover the cutbacks.
The June 5 announcement follows on the heels of a successful $20 million financing deal with Delaware-based Merrick RIS LLC through a private placement, which closed on June 3 and netted the company approximately $16.6 million. At least $3 million of that money will be used to settle a consolidated securities class action suit filed against the company, in which the company and some key officers were charged with misrepresenting the company’s financial health.
Merge Healthcare North America, based in West Allis, Wis., will be renamed Merge Fusion, while its Cedara operating division, based in Toronto, Canada, will be renamed Merge OEM.
The company also announced the resignations of CEO Kenneth Rardin, CFO Steven Norton, Merge North America President Gary Bowers and Cedara President Loris Sartor.
Rardin had been hired in September 2006 to try and turn around the struggling company after it was disclosed that former executives had bypassed internal accounting guidelines, resulting in inflated profits and revenue dating back to 2002.
Justin C. Dearborn, who has served since September 2006 as managing director and general counsel of Chicago-based Merrick Ventures, a subsidiary of Merrick RIS, LLC, will be Merge’s new CEO. Steven M. Oreskovich, who had been the company’s vice president of internal audit, will be the new CFO; Nancy J. Koenig, who had been CEO of Merrick Healthcare Solutions, a portfolio company of Merrick Ventures, will become president of the Merge Fusion division; and Antonia Wells, who had been Merge OEM’s vice president of customer operations, will take over Merge’s newly renamed Merge OEM division.
As part of the financing deal with Merrick Ventures, Merrick was allowed to place five of its own choices on Merge Healthcare’s 11-member board of directors. As a result, board members Rardin, Michael D. Dunham, Robert A. Barish, Ramamritham Ramkumar and R. Ian Lenox resigned and were replaced by Dearborn, Koenig, Michael W. Ferro Jr., Neele Stearns Jr. and Gregg G. Hartemayer.
The company expects to take a charge of at least $6 million in its second quarter financial statements to cover the reductions. In addition, company officials estimate they’ll incur additional non-cash charges during the second quarter of approximately $1 million in trade name impairment costs and $2 million in stock-based compensation costs – not to mention “additional costs incurred with the early termination of certain vendor contracts, which it cannot currently estimate.”
Merge Healthcare had been struggling financially for years, and in May – following nine straight quarters of posted operating losses – announced the sale of its subsidiaries in France and China and the planned divestiture of its EMEA business unit in the Netherlands.
Will this reorganization save Merge Healthcare? Why do you think the company is struggling? Send me your comments at eric.wicklund@medtechpublishing.com