Genesis, Skilled Healthcare deal to create $5.5B post-acute giant

Privately held Genesis Healthcare and publicly traded Skilled Healthcare Group intend to merge, creating a post-acute-care behemoth with approximately $5.5 billion in pro forma revenue.

Under terms of a deal announced Monday afternoon, Genesis, based in Kennett Square, Pa., will absorb Foothill Ranch, Calif.-based Skilled Healthcare. Genesis shareholders will own 74.25% of the new combined company, while existing Skilled shareholders will own the remaining amount. The new company will operate under the Genesis name and will continue to trade on the New York Stock Exchange, where Skilled currently trades.

Together, Genesis—which was taken private in July 2007 by private-equity firm Formation Capital in a $1.9 billion deal—will operate 449 skilled-nursing facilities and 55 assisted-living facilities, along with several other specialty-care facilities. Genesis CEO George Hager Jr. will retain the top leadership spot.

Genesis said in a filing with the Securities and Exchange Commission that it obtained more than $1.1 billion in financing to cover the transaction, which includes paying Skilled's debt.

“The combination will create an industry leader in the long-term-care market, where we believe scale and the ability to drive efficiencies will be critical to future growth,” said Skilled CEO Robert Fish in a release. “The combination will expand our core business lines, significantly diversify our markets, provide opportunities for increased efficiency and enhance our collective ability to provide the highest quality patient care.”

The two groups said they are likely to find at least $25 million in cost savings and new revenue, and a merger would also help Genesis move forward with new payment initiatives, like post-acute bundled payments.

Post-acute-care providers have faced several operational challenges, including Medicare and Medicaid cuts and sluggish volumes. Those challenges are likely to continue, which has prompted other mergers in the field.

Pending regulatory approvals and closing conditions, the deal is expected to close early next year. If Skilled decides to call off the merger, it would have to pay a $9.5 million termination fee to Genesis.

Skilled closed trading Monday at $6.15 per share, up more than 2%.

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