Continuing consolidation in the ancillary healthcare industry, Total Renal Care Holdings last week agreed to acquire competitor Renal Treatment Centers in a $1.3 billion stock swap.
The purchase will nearly double Total Renal Care's size, putting it neck and neck with Lakewood, Colo.-based Gambro Healthcare in the race to be the nation's second-largest dialysis services provider. They each control nearly 15% of the market, while Fresenius, a German renal-care company, has a 25% share. The rest of the market remains highly fragmented among much smaller local and regional providers.
Total Renal Care, based in Torrance, Calif., operates 194 freestanding kidney dialysis centers and home dialysis programs in 18 states and the District of Columbia, Puerto Rico, Guam and Europe. It also provides acute hemodialysis services in 119 hospitals.
Renal Treatment Centers, based in Berwyn, Pa., runs 164 centers in 23 states, District of Columbia and Argentina; it provides services in more than 125 hospitals.
The two companies anticipate combined 1997 revenues of $800 million. In addition, the companies plan to complete pending acquisitions of 31 centers by year-end.
"We will now have the critical mass necessary to ensure our position as the leading independent provider of dialysis services in the U.S. and the resources to rapidly expand into highly fragmented international markets," said Victor Chaltiel, Total Renal Care's chairman, president and chief executive officer.
Terms of the agreement call for Total Renal Care to exchange 1.335 shares for each share of Renal Treatment Centers in a tax-free exchange. Based on the Nov. 18 closing price of $31.13 for each share of Total Renal Care, the transaction values each Renal Treatment Centers share at $41.55.
The deal is subject to the approval of both companies' shareholders and regulatory review. It is expected to close by mid-February.
Chaltiel said the deal will give Total Renal Care new markets in Colorado, Hawaii and Oklahoma. It also will strengthen its positions in eastern Texas, Georgia, North Carolina, Pennsylvania and Southern California.
Chaltiel said he expects to achieve $8.2 million in cost savings in 1998 and an additional $22.8 million in savings in 1999. The savings are expected through more favorable contracts with suppliers and by allowing Renal Treatment Centers to use the pharmacy and laboratory services of Total Renal Care instead of continuing to outsource them.
Total Renal Care said it has no plans to close centers or lay off employees.
Robert Mayer, the current president and CEO of Renal Treatment Centers, will join Total Renal Care's board of directors.