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Matria Moves from Buyer to Seller

OKLAHOMA CITY -- Weakened by a huge acquisition -- and still searching for a miracle cure -- Matria (MATR) has decided to put itself up for sale.

The Georgia-based disease-management outfit said Tuesday that it is pursuing strategic initiatives that could lead to a possible buyout of the company. While Matria said that it has reached an "advanced stage" in its efforts, the company stopped short of guaranteeing a sale.

The company has suspended plans to give 2008 guidance, originally scheduled for release this Thursday, in the meantime.

Matria's stock -- which earlier in the day fell as much as 12% on an analyst downgrade -- soared 22% to $29.95 on the news. That move pushed the shares into the upper half of their 52-week trading range.

Just a year ago, Matria fully intended to find success on its own. Back then, Matria was the buyer -- having just acquired rival CorSolutions -- with big plans to dominate the booming disease-management space.

But that ambitious acquisition caused unexpected headaches, leading to painful contract losses and financial shortfalls. Indeed, virtually every quarter brought a new disappointment over the course of the past year.

Thus, even before this week's news, analysts had started to wonder if major changes -- including a management shakeup or outright sale -- could be on the way. In an ill-timed downgrade, issued just hours before Tuesday's announcement, Credit Suisse analyst Michael Glynn slapped an underperform rating on the stock.

Glynn, whose firm has investment banking ties to Matria, believes that the company has a possible revenue shortfall looming, and may see its stock come under pressure as a result. Glynn, for one, felt uncomfortable relying on the buyout prospects that seemed to be boosting the company's shares.

"In late December, amidst a lack of news, take-out speculation emerged that suggested Matria would be a good strategic fit with a pharmacy or a supermarket with pharmacy operations," he wrote. "Strategically, it makes some sense ... However, we have no reason to believe merger and acquisition activity is closer than it has been in the past."

Meanwhile, in a reversal of past trends, a bullish call on Matria actually paid off. As Glynn threw in the towel, Broadpoint Capital analyst Glenn Garmont stuck with Matria in hopes of a takeover.

"Matria has struggled with its financial forecasts since the CorSolutions acquisition, reflecting the lumpier nature of larger health plan contracts versus Matria's legacy employer business," Glenn acknowledged on Tuesday. "However, we are maintaining our buy rating, as we believe Matria's current valuation likely already discounts this risk."

Moreover, he added, "our positive rating is further buoyed by recent private-company M&A in the sector that ... implies a higher valuation for Matria."

Garmont values Matria at $30 a share, a target that now looks achievable if the company in fact manages to land a deal. Still, the same stock fetched far more -- peaking above $40 a share less than a year ago -- when Matria was still promising explosive growth as standalone company.

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