Sun Healthcare Group Inc.’s pending $275 million acquisition by Genesis HealthCare LLC is likely to take the nursing home operator’s corporate headquarters out of Orange County after eight years.
Representatives of both Irvine-based Sun and Kennett Square, Pa.-based Genesis declined to say where the combined company would be based.
A Securities and Exchange Commission filing by Sun after the deal was announced said it has not yet been determined “what corporate resources might need to be retained in Orange County or Albuquerque, (N.M.).”
Sun operates rehabilitation centers and hospices in addition to nursing homes, and also has a medical staffing service.
It employs about 150 in Orange County, and another 250 or so in Albuquerque. The rest of the company’s 28,000 workers are scattered at healthcare facilities around the U.S.
“We anticipate that most of our 28,000 (companywide) employees will remain employed by the new company Genesis,” the filing said.
Genesis intends “to go through a careful and deliberate assessment to determine which employees will be asked to stay,” Sun Chief Executive William Mathies said in the filing.
Sun has been based in Orange County since 2003, a year after it emerged from bankruptcy protection and moved here from Albuquerque.
75,000 Workers
Genesis’ deal for Sun is expected to close this fall. It will create a company with more than 420 facilities and 75,000 workers, with about $4 billion in annual revenue.
Genesis and Sun have similarities, according to Mathies, including a portfolio of skilled nursing and assisted-living facilities, and rehabilitation businesses that are mostly leased.
“Together, the combined company will be able to use its strengths on a broader scale,” Mathies said.
Sun’s sale to Genesis comes at a time when nursing home stocks have been under pressure from regulatory and reimbursement concerns.
The Centers for Medicare & Medicaid Services reduced reimbursement for nursing homes by 11% for the 12 months through Sept. 30—something that prompted cost-cutting and lowered growth prospects for the industry.
The company’s stock was largely unaffected by last week’s Supreme Court decision on healthcare reform.
• Headquarters: Irvine
• Business: Operates nursing homes, other healthcare facilities
• Founded: 1989
• Ticker symbol: SUNH (Nasdaq)
• 2011 revenue: $1.93 billion
• Recent earnings: $17 million in Q1
• Market value: About $213 million
• Notable: Agreed to $275 million sale to Genesis HealthCare LLC in Kennett Square, Pa.
43% Premium
Genesis’ offer for Sun represented a 43% premium over the company’s closing stock price on June 19, the day before the deal was announced.
The buy “should provide a lift in valuation” for other companies in Sun’s market, Frank Morgan, a Nashville, Tenn.-based analyst for RBC Capital Markets in Toronto, wrote in a note issued after the deal’s announcement. Sun’s competitors include Foothill Ranch-based Skilled Healthcare Group Inc. and Ensign Group Inc. of Mission Viejo.
“In light of the current regulatory and reimbursement environment for (nursing homes), we believe this is a good outcome” for Sun investors, he said.
Morgan said he didn’t expect Genesis to have a problem closing the deal because he thinks it will be viewed favorably by Sabra Health Care REIT Inc., the Irvine real estate owner that was spun out of Sun in 2010. Sun leases most of its nursing homes from Sabra.
Sabra “received better guarantees from Genesis,” Morgan said, adding he didn’t expect any competing bidders.
The deal likely surprised others on Wall Street.
Sun’s shares had been hot prior to the Genesis announcement. They are up more than 50% since the beginning of the year, with a recent market value of about $213 million.
Prior Talk
Sale talks hovered around Sun for a while.
Clinton Group Inc. of New York asked Sun’s directors to consider a sale in a December letter. Clinton said its Clinton Magnolia Master Fund was “one of the top 15 shareholders of Sun,” although it did not specify the size of its stake.
Sun was undervalued in the public markets and a sale would maximize shareholder value, Clinton said.
The fund pointed out that Sun’s stock price at the time was down more than 75% since the start of 2011.
“The market is pessimistic about the company’s ability to achieve its projections and thrive as an independent company,” Clinton said in its letter.
