Genesis HealthCare announced today it has signed a definitive agreement to merge with Skilled Healthcare Group, Inc. (NYSE: SKH) in a 100% stock transaction.
Once the transaction is complete, the new company will operate under the Genesis HealthCare name and will be traded on the NYSE. The combined entity will operate a total of 449 skilled nursing facilities and 55 assisted living facilities.
“The combination will create an industry leader in the long-term care market, where we believe scale and the ability to drive efficiencies will be critical to future growth,” stated Robert Fish, Skilled Healthcare’s CEO. “The combination will expand our core business lines, significantly diversify our markets, provide opportunities for increased efficiency and enhance our collective ability to provide the highest quality patient care.”
Under the agreement, Skilled shareholders will collectively own 25.75% of the vote and value of the fully-diluted equity of the combined company, with Genesis shareholders owning the other 74.25%.
Through leveraging Genesis’ existing infrastructure, Skilled Healthcare Group has identified $25 million of cost savings and revenue opportunities, with additional upside potential, according to a presentation from the company.
Headquartered in Foothill Ranch, Calif., Skilled Healthcare Group posted $842 million of revenue in 2013. The company operates 95 skilled nursing and assisted living facilities in eight states, tallying more than 10,000 licensed beds.
Additionally, the company also provides rehabilitation therapy services in 177 owned and third-party facilities in eight states and manages the rehabilitation therapy services for 10 skilled nursing facilities in New Mexico. The company also provides hospice in six states and home health services in five states.
Genesis HealthCare, based in Kennett Square, Penn., reported revenue of $4.65 billion in 2013. The company’s portfolio includes 409 skilled nursing, assisted living and behavioral health facilities in 28 states, totaling nearly 50,000 licensed beds.
The company became the largest provider of skilled nursing following its December 2012 acquisition of the publicly-held Sun Healthcare for approximately $275 million.
Between 2005 and 2012, Genesis invested nearly $600 million of capital to develop clinical specialty units, upgrade and modernize physical plant and invest in a technology platform.
In April 2011, the company sold its owned real estate in a $2.4 billion sale leaseback transaction with Health Care REIT (NYSE: HCN).
As part of the acquisition of Genesis real estate, Health Care REIT obtained an option to purchase a 9.9% interest in the company for a fixed price, which it expects to pursue a cashless exercise of this option and receive publicly traded stock reflecting a 3.2% interest in the newly formed public company.
“We are privileged to have a strong partnership with George and the Genesis team,” said Health Care REIT CEO Tom Derosa in a statement. “The increased scale, access to public capital and potential for improved credit metrics associated with this transaction benefits HCN and our shareholders.”
Sabra Health Care REIT (NASDAQ: SBRA), whose largest tenant is Genesis HealthCare, also commented on Monday’s merger announcement.
“We believe the quality of our tenant base, including our existing parent guaranty from Genesis, is only strengthened by this transaction and our shareholders will benefit by the enhanced transparency of Genesis being a publicly-traded company,” stated Rick Matros, CEO and chairman of Sabra. “Genesis is a leading operator in the sector and we view this transaction favorably.”
In connection with the transactions contemplated by the purchase agreement, Genesis has obtained debt financing commitments in an approximate aggregate principal amount of $1.147 billion, according to an document Skilled Healthcare Group filed with the Securities and Exchange Commission (SEC).
The combined company would have trailing 12 month revenues—as of June 30, 2014—of more than $5.5 billion, with more than 500 facilities in 34 states and approximately 95,000 employees.
The closing of the transaction is subject to customary regulatory approvals, as well as other conditions, and is expected to occur in early 2015.
Shares of Skilled Healthcare Group were trading at $8.50 per share, up more than 38% from the stock’s closing price of $6.15 per share, in after hours trading Monday, following the deal announcement.
Written by Jason Oliva