Psyched out

17 May 2010 By Robert Cyran Follow @rob_cyran

Executives at Psychiatric Solutions were awarded rich options packages shortly before news leaked of a buyout with the CEO onboard. The timing looked unsavory, and led to a federal investigation. But it also spurred an auction, bringing a higher $2 bln bid from rival UHS.

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Context News

Universal Health Services has agreed to buy Psychiatric Solutions for $1.9 billion, or $33.75 a share. The hospital chain will also assume $1.1 billion of net debt associated with its rival. Private equity firm Bain, which was working with the mental health provider's chief executive, Joey Jacobs, also bid for the company.

The UHS bid is a 41 percent premium to the undisturbed share price of Psychiatric Solutions. In late February, the compensation committee awarded about $30 million in restricted stock and options to the company's top four executives. In March, the board formed a special committee to examine the sale of the company. The Department of Justice is conducting an investigation relating to executive compensation and options grants.

In April, the board approved a change of control scheme under which managers received higher payouts in case the company was sold. Jacobs will receive three times his base salary and the highest bonus paid out in the previous three years, as well as several other perks.

(Corrects figure to "about $30 million" from "more than $1 billion" in third paragraph, and in Context News)

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