Parent to Cut Loose Blue dot by Year's End

BY ROBERT P. MADER of CONTRACTORs staff SIOUX FALLS, S.D. Blue Dot will be an independent company by the end of the year its simply a question of in what form. The floundering PHC consolidator has been up for sale since April. Blue Dots parent, NorthWestern Corp., delisted from the New York Stock Exchange and warning that it may have to file for bankruptcy, sold off individually 18 of the worst-performing

BY ROBERT P. MADER of CONTRACTOR’s staff

SIOUX FALLS, S.D. — Blue Dot will be an independent company by the end of the year — it’s simply a question of in what form. The floundering PHC consolidator has been up for sale since April.

Blue Dot’s parent, NorthWestern Corp., delisted from the New York Stock Exchange and warning that it may have to file for bankruptcy, sold off individually 18 of the worst-performing Blue Dot locations last spring.

Blue Dot has about 40 locations left, said Roger Schrum, vice president/external communications for NorthWestern Corp. The company is attempting to sell the remainder of Blue Dot in a single chunk, Schrum said, although it might sell individual locations.

“We’ve gone though a private auction and we will continue to pursue that process,” Schrum said. Bear Stearns is assisting NorthWestern in the sale process.

He declined to say how many potential buyers NorthWestern is courting or to characterize the types of buyers interested in Blue Dot. The sale, Schrum noted, is part of NorthWestern’s decision to exit all non-utility businesses. The company is also trying to unload a communications firm called Expanets.

Its remaining contracting firms are stable and able to generate enough cash on their own to keep going, Schrum said. He declined to say how much NorthWestern thought it could get for them.

In a quarterly filing last spring with the Securities and Exchange Commission, the company noted: “As of March 31, 2003, we completed the sale of nine of these non-core locations. In April, we completed the sale of the remaining non-core locations. We received approximately $1.8 million from the sales of these non-core locations, of which $1.4 million related to the nine locations sold during the quarter ended March 31, 2003.”

In its latest quarterly filing with the SEC this past August the company said, “Although we hope to conclude our disposition of Blue Dot in 2003, we do not anticipate receiving a material amount of net cash proceeds in excess of liabilities in the transaction.”

Part of the firm’s problem may lie in changes to accounting rules that require public companies to eliminate goodwill from its books. It turned out that many of NorthWestern’s properties were not worth anywhere near the value that they had been carrying on the company’s books. The company was forced to record an impairment of goodwill for Blue Dot of $301.7 million. That reduced the actual value of BlueDot to less than $13 million.

As a result, the company’s annual report last spring noted, “As of Dec. 31, 2002, after impairment charges and recognizing our share of net losses, the net recorded book value of our aggregate investment in and advances to Blue Dot, which consisted of $384.8 million in equity and $11.9 million in inter-company indebtedness, was $12.6 million.”

In addition, the write-down of goodwill resulted in Blue Dot posting a loss, at least on paper, equal to two-thirds of its annual revenue.

The annual report stated: “Blue Dot reported an operating loss in 2002 of $311.3 million, compared with an operating loss of $13.8 million in 2001. Blue Dot’s results were impacted by goodwill and long-lived asset impairments in the fourth quarter of 2002 of $301.7 million and poor economic conditions. Revenues were $471.8 million in 2002, compared with revenues in 2001 of $423.8 million.”

NorthWestern announced last spring that it was essentially cutting Blue Dot loose and that the businesses would have to fend for themselves financially. Technically Blue Dot is in default on its credit agreements, although it has reached a “forbearance agreement” with its “credit facility provider.”

What a potential buyer will get is unknown, especially in a people business such as the PHC service business. Human nature being what it is, NorthWestern noted in its SEC filings that both managers and technicians may bail out and the company may have trouble replacing them. In addition, suppliers might cut off the company’s credit. Both problems will put further financial pressure on Blue Dot and make it more difficult to sell.

In CONTRACTOR’s 2003 Book of Giants (May, pg. 39), Blue Dot ranked 11th with revenues of $471.80 million.