Even though the Emeritus Corp. failed to take over a rival assisted-living company, the move is a sign the young industry is becoming more aggressive.
Seattle-based Emeritus has terminated its $313 million takeover bid of ARV Assisted Living of Costa Mesa, Calif., after a U.S. District Court in Santa Ana, Calif., denied on Jan. 30 Emeritus' attempt to overturn ARV's partial sale to another firm. Subsequently, a special ARV shareholder meeting scheduled for Feb. 5 to consider a new board was canceled.
"The assisted-living industry hasn't seen such an attempt," said Robert Kramer, executive director of the National Investment Conference for the Senior Living and Long Term Care Industries, an Annapolis, Md.-based not-for-profit research group.
Emeritus was offering $17.50 a share, or 6% more than it offered ARV to acquire the company last October. Emeritus' $313 million offer included assumption of ARV's debt.
But ARV stood by its agreement with New York based-Lazard Freres Real Estate Investors. Lazard's Prome-theus unit purchased $60 million in convertible notes from ARV in October. Lazard currently owns about 48% of ARV.
ARV also scored a victory last month when former Chairman and Chief Executive Officer Gary Davidson sold his 6% stake in ARV, nearly 1 million shares, to Lazard. Although Davidson didn't disclose reasons for his departure, he left a day after ARV rejected Emeritus' Oct. 15 offer to buy 92% of ARV for $210 million, or $16.50 per share.
Emeritus hoped Davidson was in its camp when he joined Emeritus' call earlier this year for a vote on a new slate of board directors.
But Davidson wasn't impressed with Emeritus' proposal, calling it "not attractive" in documents he filed with the Securities and Exchange Commission last month.
"We were a 5% shareholder (in ARV) when Lazard came on the scene," said Emeritus' Chairman and CEO Dan Beatty. "Lazard paid $14 a share for the company, and we were willing to pay more than that to the shareholders. We feel the company is worth more."
ARV gained further backing after its shareholders voted 5-to-1 in January in favor of its slate of ARV's shareholders.
Emeritus operates 117 facilities in 23 states and Canada but wanted a stake in California, where ARV is dominant. Emeritus has annual revenues of about $150 million.
"We're making sure we are located in strategic states so we can round out some clusters," said Howard Phanstiel, who has been ARV's chairman and CEO the past five months.
ARV, founded in 1980, operates 49 assisted-living facilities with 6,150 units in 10 states, including 30 in California. It posted $85 million in revenues in 1997.
Phanstiel said: *"We are the biggest player in California, but there's plenty of room to grow. We are also looking at other areas and other western region states."
ARV said it is serving its shareholders just fine, pointing to revenue growth in the last two years that has doubled the size of the company. "Revenues were up 150% in 1997," Phanstiel said.
Revenues rose by $55 million last year from $30 million in 1996, ARV said. ARV's 1997 earnings have yet to be released, but most analysts forecast a minimal loss for the year with a projected net income this year.
Executives at publicly traded assisted-living firms say they have yet to post profits because most are in their infancy. Fifteen firms focusing on assisted living as their primary business have had initial public offerings in the past four years.
Those 15 companies lost $31 million on $488 million in revenues in 1996, according to Hilton Head, S.C.-based WDI Capital Markets. In 1995 the companies lost $25 million on $277 million in revenues.