Mergers involving long-term-care chains remained hot during the first week of 1994 as Sun Healthcare Group signed a letter of intent to purchase the Mediplex Group in a cash-and-stock transaction valued at $320 million.
The merger would help Sun Healthcare, a long-term-care company, diversify by moving further into subacute care, Mediplex's specialty. Industry experts predict significant growth in subacute care as patients increasingly are moved out of acute-care hospitals, but need advanced care that's not available in typical long-term-care facilities.
"The long-term-care industry is responding well to consolidations," said Abraham Gosman, chairman and chief executive officer of Wellesley, Mass.-based Mediplex.
"There's no question that our industry is rewarding those (companies) that consolidate services," Mr. Gosman added.
Sun would be the surviving company after the transaction, which is subject to regulatory and shareholder approval, is completed during the second quarter of 1994.
Executives at both companies said they expect to sign a definitive merger agreement by the end of the month.
As part of the deal, Albuquerque, N.M.-based Sun will pay $11 in cash plus 1.28 shares of its common stock in exchange for each share of Mediplex stock.
Sun's common stock closed on the New York Stock Exchange at $17.25 on Jan. 3, the day before the deal was announced, giving the transaction a current value to Mediplex's shareholders of approximately $33.08 per share.
Mediplex's Mr. Gosman-who is also chairman of Meditrust, the nation's largest healthcare real estate investment trust-will relinquish all corporate duties but remain a shareholder, holding 8% of the company's outstanding shares. Andrew L. Turner, chairman and CEO of Sun, will remain in those positions and will hold a 33% stake in the newly combined company.
"This merger will permit Sun to accelerate the implementation of sub-acute programs|.|.|.|in our existing facilities," Sun's Mr. Turner said. "Furthermore, the combined presence of 53 facilities and seven ambulatory surgery centers in the Northeast will establish a strong network for managed-care contracting."
The Sun/Mediplex deal is the latest in a series of mergers among long-term-care providers seeking to streamline operations in anticipation of healthcare reform.
Late last month, the boards of directors at Regency Health Services and Care Enterprises approved a merger of the two long-term-care companies in a stock-for-stock transaction valued at $120 million (Jan 3. p. 6).
Albuquerque neighbor Horizon Healthcare Corp.'s $85 million merger with Greenery Rehabilitation Corp. was on line to be completed this month, but was indefinitely delayed after the Massachusetts' Department of Public Health denied Horizon's application to operate in that state, citing Horizon's track record of poor patient care (Jan. 3, p. 17).
After the completion of the merger, Sun will operate 110 healthcare facilities in 20 states with a total of 13,073 beds.-John Burns