Safeguard Health Embarks on Its Strategy for Growth

ANAHEIM — Safeguard Health Enterprises Inc., launching an aggressive new strategy to increase membership, said Thursday that it plans to acquire a major managed dental health-care competitor in Dallas.

Safeguard said its agreement to buy First American Dental Benefits Inc. for an undisclosed amount of cash would be the company’s first outside acquisition. The privately held Texas company does business as American Dental Corp.

The transaction, which is expected to be completed in 45 days, would swell Safeguard’s membership rolls about 25% to nearly 1 million. It also would increase the company’s annual revenue by about 20% to $100 million.

Safeguard officials said the company may seek other acquisitions as part of a strategy of weaning itself from large corporate clients. Safeguard’s membership dropped significantly early in the decade when major clients such as McDonnell Douglas Corp. and Rockwell International Corp. downsized.

“We will go after smaller companies because we know from experience what can happen when you get into large companies,” said Thomas C. Tekulve, Safeguard’s chief financial officer. “We will now go after companies with 100 to 1,000 employees.

And Dallas-based American Dental serves companies fitting that profile, he said.

Safeguard, a 22-year-old company, provides managed dental and vision benefits in 12 western states, including Texas. “We had a foothold in Texas, now we have a stronghold,” Tekulve said.

Analysts said the planned acquisition is the latest in a wave of consolidations sweeping the health-care industry.

Earlier this year, in fact, Safeguard adopted a “poison pill” measure to thwart any unwanted takeover attempt. The company took the step in March after an analyst said the stock, which was trading at just under $16 per share, was undervalued. At the time, the company said the move wasn’t in response to any particular takeover attempt.

Safeguard stock closed Thursday at $18.25 per share, down 50 cents, in Nasdaq trading.

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Acquisition Time

Safeguard Health Enterprises’ acquisition of First American Dental Benefits Inc. is expected to increase Safeguard’s revenue to $100 million and membership to nearly 1 million. Here’s how Safeguard has fared during the last five years, with revenue and income figures in millions:

Revenue

1991: $60.8

1992: $60.6

1993: $62.8

1994: $70.5

1995: $81.6

*

Net income

1991: $2.6

1992: $3.9

1993: $4.0

1994: $1.3

1995: $2.4

*

Membership

1992: 667,000

1993: 664,000

1994: 721,000

1995: 761,000

1996*: 778,000

*First quarter

Sources: Bloomberg Business News, Times reports; Researched by Janice L. Jones / LOS ANGELES TIMES