Reaction to the proposed purchase of Manor Care Inc. remained muted today after the nursing home chain announced on Monday a proposed leveraged buyout of the company.
At midday Thursday, the stock of Toledo, Ohio-based Manor Care was trading at $64.17. That's nearly $3 a share less than the proposed acquisition price of $67 per share offered by The Carlyle Group, a Washington-based private equity firm.
Manor Care operates 279 nursing homes and about 250 other community care providers. It said the completion of the transaction depends on shareholder and regulatory approvals, and the deal could close in the fourth quarter of 2007. The total acquisition price, including assumed debt, would total $6.3 billion.
Standard & Poor's Corp., the New York-based credit rating agency, responded by dropping its corporate credit rating on Manor Care to B+, a junk bond status, and left the company on its CreditWatch rating list, with negative implications.
Further rating cuts may be applied to other Manor Care debt, and S&P said it may lower the company's debt rating further after it reviews its final plans for the acquisition.
"We expect the transaction to include the issuance of a large amount of new debt that will significantly compromise credit quality," said David P. Peknay, primary credit analyst for S&P.
"We will also review strategic decisions regarding the operation of the company under a large debt burden as part of our evaluation to resolve the CreditWatch listing," Peknay added.
The lower debt rating is significant, because it could add substantially to the cost of financing the acquisition because debt investors will require a higher interest rate to take on the higher risk of Manor Care's debt, as assessed by S&P.
The credit rating agency initially placed Manor Care's debt on CreditWatch after the company announced it was hiring a financial advisor to review financial and business alternatives with the intent of enhancing shareholder value.
That announcement goosed Manor Care's stock from $55.75 on April 10 to as much as $68.49 over the next couple months. But after the deal was announced, its stock fell from a closing price of $65.29 on Friday, June 29, to as low as $64.05 on Monday, July 2. As of noon on Thursday, July 5, the stock was trading within a narrow range.
Almost all of the stocks of eight other publicly traded long-term care companies were down significantly in trading on Thursday, with declines ranging from 0.5 percent to 1.6 percent. The only long-term care company stock to rise was that of Genesis Healthcare Corp., which agreed earlier this year to a leveraged buyout.
The nation's largest operator of long-term care facilities, Beverly Enterprises, Fort Smith, Ark., went private in February 2006.
Another provider undergoing selling pressure is Sunrise Senior Living Inc. Millennium Partners, a hedge fund and minority shareholder on Tuesday released a letter that it had sent to the board of Sunrise Senior Living, calling for the company to sold or restructured, or for there to be changes in management. The Securities and Exchange Commission is also probing the company regarding possible insider stock transactions.