[UPDATED] Five Star Fends Off Senior Star in Battle Over Shares

Five Star Senior Living (NYSE: FVE), one of the nation’s largest senior living providers, has blocked the efforts of activist shareholder Senior Star to gain a greater stake in the company, at least for the moment.

The saga between Five Star and Senior Star goes back nearly a year, when Senior Star proposed to buy Five Star’s 33 owned properties for $325 million. Senior Star co-founders William F. Thomas and Robert D. Thomas, who together hold nearly 7% of outstanding Five Star shares, argued that this sale would unlock significant value in FVE’s shares and create a better strategic position for the Newton, Massachusetts-based provider.

Senior Star is a Tulsa, Oklahoma-based senior housing owner and operator of 14 properties. Five Star is the fourth-largest senior living provider in the nation.


Five Star repeatedly rejected Senior Star’s efforts to buy the owned assets. However, the two companies recently began grappling again.

The latest back-and-forth began after a company owned by Five Star Managing Director Barry Portnoy made a tender offer for up to 10,000,000 shares of Five Star common stock, at $3.00 per share—a 57% premium to the closing price of FVE shares on Sept. 30. To clear the way for that tender offer, Five Star’s directors waived certain ownership restrictions.

Senior Star then announced its intention to make a competing tender offer for up to 10,000,000 shares, priced at $3.45 per share, and said it expected “good faith” from Five Star in granting the same waivers and exceptions that it had for Portnoy’s company.


Thursday, Five Star at least temporarily rejected Senior Star’s requests for those waivers. One day later, ABP Acquisition LLC (ABP)Portnoy’s companyannounced that its tender offer has been increased to 18,000,000 shares at $3.00 per share.

William and Robert Thomas had not responded to requests for comment as of press time.

The Tax Angle

A 5% limitation on ownership of FVE shares is needed due to tax issues, such as protecting tax credit and loss carryforwards, the company stated in its letter sent to Senior Star Co-Founder William Thomas on Thursday. Granting exceptions to the ownership cap to both ABP and Senior Star would jeopardize Five Star’s tax attributes, according to the letter.

Therefore, the earliest that Five Star would be able to grant those waivers to Senior Star would be on March 31, 2017—after ABP’s right to acquire up to 18 million shares expires. If Senior Star remains interested in making its tender offer after that date, the Five Star Board of Directors said it will consider the request for waivers at that time.

The REIT Angle

Another issue relates to real estate investment trust (REIT) Senior Housing Properties Trust (NYSE: SNH), the letter states. SNH currently owns 246 Five Star communities, and Five Star used to be a 100% owned subsidiary of the REIT.

If any individual or group acquires more than 9.8% of FVE shares without SNH approval, the REIT has the right to terminate its contracts with Five Star.

“Five Star’s ability to preserve its relationship and the benefit of its contracts with SNH is critical to its evaluation of your request,” the Five Star letter states.

Senior Housing Properties Trust sent a separate letter to William Thomas on Thursday, saying that it would take no action with regard to the requested waivers and consents at this time, given the rejection by Five Star’s board.

If Five Star were to grant these waivers to Senior Star in the future, SNH still would have to approve this move as well. In doing so, it would consider factors such as the “continuity and stability of SNH’s business relationship with Five Star,” according to the letter.

ABP’s Take

The Thomas brothers are not likely to complete their tender offer, ABP argued in a statement issued Friday.

Not only has Five Star rejected the Thomases’ request for waivers as of this time, the brothers are unlikely to ever accept similar standstill and lock-up provisions that ABP accepted, according to the statement. For instance, the Thomas brothers already have begun the process to make nominations to Five Star’s board, which would not be allowed.

“ABP believes the announcement made by the Thomas brothers is an obvious attempt to disrupt ABP’s pending cash tender offer and to further the Thomas brothers’ private interests to acquire certain Five Star assets at bargain prices,” the statement concludes.

Written by Tim Mullaney

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