Vitalink Pharmacy Services in Naperville, Ill., announced plans to acquire Gran-Care's institutional pharmacy business for about $370 million in stock and assumed debt.
The deal would give Vitalink revenues of approximately $400 million, making it the second-largest publicly traded institutional pharmacy company behind Cincinnati-based Omnicare. Vitalink is 82% owned by Gaithersburg, Md.-based Manor Care, one of the nation's largest long-term-care providers (See related story, this page).
Under the agreement, GranCare will spin off its skilled-nursing business in a tax-free distribution to shareholders. That unit alone will remain a publicly traded company with the GranCare name.
After the spinoff is completed, the remaining indebtedness will total about $107 million. Vitalink will then issue about 11.6 million of its shares, which were trading around $22 last week, in exchange for all the outstanding shares and stock options of GranCare-not including the spun-off unit-and will assume the remaining indebtedness.
The transaction is expected to close by Dec. 31 and is subject to approval by the shareholders of GranCare and certain regulatory agencies. After the deal closes, Vitalink will serve about 10% of the total skilled-nursing facility beds in the country through 54 pharmacy locations in 29 states.
Earlier this spring, GranCare had consolidated its pharmacy divisions under the name TeamCare. The subsidiary provides institutional pharmacy services in 23 states. TeamCare's net revenues for the 12 months ended May 31 were $220 million.
Vitalink currently provides medications, consulting and infusion services to about 52,000 beds and to home-infusion patients through 23 institutional pharmacies and four regional infusion pharmacies. The company reported net revenues of $141 million and net income of $13.9 million, or 99 cents per share, for the year ended May 31.
The companies are billing the move as a merger between equals and have brought executives from both GranCare and Vitalink on board the new entity. Stewart Bainum, currently chairman and chief executive officer of Manor Care, will be chairman of Vitalink. Gene Burleson, currently chairman and CEO of GranCare, will be Vitalink's CEO.
Other Vitalink executives will retain their positions, while Arlen Reynolds, currently president of TeamCare, will become executive vice president of the new group. The board of directors will be composed of four representatives from each company.
Mark Banta, an analyst with Salomon Brothers in New York, said the companies can now take advantage of increased operating efficiencies and their shareholders can benefit from a higher valuation of their stock.