Brookdale Senior Living (NYSE: BKD) and Emeritus Corporation (NYSE: ESC) announced on Thursday an agreement to merge in a transaction valued at $2.8 billion.
As a result of the merger, the companies will create “the only nationwide network of senior living communities with fully integrated ancillary services across the continuum of care,” and the largest senior living platform in the nation.
Following the closing of the merger, a Brookdale community will be located within 10 miles of 6.5 million seniors who are 80 years old or older.
Emeritus shareholders will receive 0.95 shares of Brookdale common stock in exchange for each share of their Emeritus common stock upon the deal closing. The transaction includes $1.4 billion of Emeritus mortgage debt and is expected to close in the third quarter of 2014.
Brookdale will broaden its footprint across the U.S., with unit capacity expanding by more than two-thirds to total around 112,700 units in 1,161 communities in 46 states through the merger. As of June 1, 2013, the industry’s largest owners Health Care REIT and Ventas owned a combined 111,667 units, according to the ASHA 50.
The combined senior living portfolio will have presence in 330 markets, where 80% of the U.S. population is located.
“With still only 10% market share post-merger, we are confident of our prospects for driving further long-term revenue growth through organic expansion, while enhancing our position in a rapidly consolidating industry,” said Andy Smith, CEO of Brookdale, in a statement.
Brookdale expects the merger will produce “significant” operating efficiencies and reduce operating expenses by up to $45 million a year. The deal will also enable further investment in improving the senior living provider’s service delivery through associate training and education, physical enhancements to communities, and refinement of the company’s technology platform.
Emeritus shareholders will own approximately 27% of Brookdale, post-merger.
Brookdale CEO Andy Smith will continue to serve as CEO and Mark Ohlendorf as President and Chief Financial Officer. The companies anticipate members of Emeritus’ senior management team will continue in senior positions after the merger, with Emeritus CEO and President Granger Cobb joining Brookdale’s Board of Directors and continuing in a consulting role with the company.
“Both companies share many core strengths, but foremost is a resident-centric culture, with passionate, dedicated associates committed to providing a high level of customer service,” said Cobb. “Combining and maximizing the significant strengths of our two outstanding companies is certain to be of tremendous advantage in supporting our customers and their families as they face the challenges of aging.”
The company headquarters will remain in Nashville, Tennessee.
Seattle-based Emeritus has come under intense media scrutiny in the past few quarters, stemming from an elder abuse case and culminating in a multi-part PBS and Frontline investigative series targeting the assisted living provider.
Brookdale executives addressed questions regarding the Frontline piece in a call with analysts Thursday.
“We had a number of discussions with folks at Emeritus on the impact of the Frontline piece and related repercussions,” Smith said. “It’s clear to us that our peers at Emeritus are as committed to providing high quality services as we are…Emeritus has responded in the same way we would.”
Brookdale said upon its most recent quarterly earnings announcement that it would pursue acquisitions in the space, but did not indicate it was considering the deal with Emeritus.
Editors Note: SHN will continue to update as the story develops, stay tuned.