Two major long-term-care companies announced plans last week to further shore up their positions in the quickly consolidating industry.
Sun Healthcare Group agreed to buy Regency Health Services for $589 million, while a former hospital executive was appointed to lead the company that will be formed by the merger of GranCare and Living Centers of America.
Albuquerque-based Sun said it will acquire Tustin, Calif.-based Regency for $22 per share, or $369 million in cash. In addition, Sun said it will assume or refinance $220 million of Regency's debt.
The deal has been approved by the boards of both companies and is expected to be completed during this year's fourth quarter. Sun said it obtained a $1 billion expanded credit facility from NationsBank of Texas to finance the acquisition, satisfy other debt obligations and provide for ongoing capital projects.
Standard & Poor's Corp., a New York-based credit-rating agency, affirmed Sun's B+ corporate credit rating despite the increase in debt, saying the acquisition will likely result in cost savings. Sun said it expects the deal to help expand its ancillary service businesses and achieve operating efficiencies through a shared infrastructure.
Regency operates 116 skilled-nursing facilities, 26 outpatient rehabilitation therapy clinics and eight institutional pharmacies. It also provides contract therapy services to 202 facilities. The company expects 1997 revenues of $670 million.
After the Regency purchase and the previously announced acquisition of Atlanta-based Retirement Care Associates have been completed, Sun will operate 510 skilled-nursing facilities and 47 assisted-living facilities. Sun expects combined revenues of more than $3 billion in 1998. For the second quarter ended June 30, Sun reported an 8.5% rise in net income to $17.8 million, or 36 cents per share, compared with $16.4 million, or 34 cents per share, in the year-ago quarter. Revenues rose 37% to $447.5 million.
Meanwhile, Keith B. Pitts, 40, was named chairman and chief executive officer of the company that will be formed by the merger of Houston-based Living Centers of America and Atlanta-based GranCare. New York-based Apollo Management will help finance the deal and be a part-owner in the merged company, which will be based in Atlanta and has yet to be named.
The merger was given antitrust clearance last month and is awaiting final shareholder approval. It is expected to be completed by the end of September. The combined company expects pro forma revenues of $1.9 billion (June 23, p. 50).
Pitts is a director of several public and private healthcare services companies and formerly served as executive vice president and chief financial officer of Nashville-based OrNda HealthCorp, which was acquired by Santa Barbara, Calif.-based Tenet Healthcare Corp. in January.
Until the merger is completed, GranCare said Pitts will be retained by Apollo as a consultant and will be working on the new company's cost savings and transition plans and on finalizing its management team.