Genesis HealthCare will acquire Sun Healthcare Group, Inc. (NASDAQ:SUNH) in a $275 million transaction announced on Wednesday. The merger follows a December letter to Sun’s board of directors by the investment manager of one of the healthcare company’s largest investors, calling for a sale to a larger industry player.
The combined companies will create the largest provider of post-acute and skilled nursing services in the country, with more than 420 facilities in 29 states.
Under the terms of the merger agreement, Genesis will acquire Sun for $8.50 per share of common stock in cash, which equals about $275 million net of cash and debt acquired. The transaction closing requires approval by Sun stockholders, along with other customary conditions, and is expected to occur in the fall.
The transaction price is a 43.1% premium above Sun’s closing sale price on Tuesday, June 19, and a 55.6% premium to the volume-weighted average closing sale price of approximately $5.46 during the 30 trading days prior to that date.
“The combined entity will have broad geographic reach and the scale necessary to remain competitive in the post-acute sector,” said William A. Mathies, Sun’s chairman and CEO, in a statement. “On a combined basis, the two companies generated roughly $4 billion in revenue in 2011 and will have more than 420 facilities and 75,000 employees.”
Sun and Genesis have “similar operating structures,” Mathies said, and both operate a predominantly leased portfolio of skilled nursing and assisted living facilities, along with a fully-integrated rehabilitation company. “Together, the combined company will be able to use its strengths on a broader scale, which will be advantageous as the post-acute care industry continues to evolve,” he said.
Genesis’s CEO George V. Hager, Jr. called the merger a “tremendous opportunity to grow our business,” with a strategic ability to improve economies of scale while enhancing the company’s footprint and breath of services.
“The transaction provides George Hager and his team the opportunity to expand the Genesis portfolio and to increase the scale of its rehabilitation therapy, hospice and inpatient services,” said George L. Chapman, Chairman and CEO of Health Care REIT, Inc. (NYSE:HCN), regarding its largest tenant’s purchase agreement. “We expect the transaction to have a positive impact on the financial strength of Genesis, further enhancing our investment.”
Barclays is acting as Genesis’ exclusive financial advisor, with Skadden, Arps, Slate, Meagher & Flom LLP, Williams Mullen and Arnall Golden Gregory LLP acting as its legal advisors. Weil, Gotshal & Manges LLP represented Barclays as financial advisor and lender to Genesis Healthcare in the deal.
MTS Health Partners, L.P. is acting as Sun’s exclusive financial advisor, with O’Melveny & Myers LLP as legal advisor.
Back in December, Clinton Group, Inc. called for the company’s sale, reasoning that Sun’s stock was “significantly undervalued” and the company would be more valuable in the hands of a larger industry player with economies of scale.
View Sun Healthcare Group’s 8-K filing.
Written by Alyssa Gerace