HCR To Acquire Manor Care
GAITHERSBURG, Md. (AP) _ Health Care & Retirement plans to acquire Maryland-based Manor Care Inc. for $2.4 billion in stock, uniting the two long-term health care providers.
Toledo, Ohio-based Health Care & Retirement will also assume about $2.6 billion of Manor Care’s debt in the deal, which is expected to be finalized this fall, the companies announced Wednesday.
Manor Care shareholders will receive one share of HCR stock for each of Manor Care’s 63.7 million shares in a tax-free transaction.
The merged company, to be called HCR Manor Care, will be headquartered in Toledo, resulting in some job losses at Manor Care’s Gaithersburg headquarters.
Manor Care CEO Stewart Bainum will be chairman of the new company. Paul Ormond, chairman, president and chief executive of Health Care & Retirement, will become president and chief executive of the combined company.
The Bainum family, which holds about 31 percent of Manor Care shares, has agreed to vote in favor of the transaction, Manor Care said.
Shares of Manor Care rose 1/8, or .4 percent, closing at 31 1/8 on the New York Stock Exchange following the announcement of the deal. Meanwhile, shares of Health Care & Retirement fell 5/8, or 1.7 percent, to close at 37 1/8.
HCR, which reported 1997 revenues of $892 million, has more than 22,000 employees and operates 124 long-term care centers, 116 sub-acute and rehabilitation units plus outpatient therapy clinics, assisted living centers, and home health offices.
Manor Care operates 171 skilled nursing and rehabilitation facilities, 42 assisted living centers and one acute care hospital.
John Hindelong, a financial analyst with Donaldson, Lufkin & Jenrette, said the deal makes sense in light of Medicare changes facing the nursing home industry.
Starting July, a payment system will be phased in under which providers will be reimbursed on a per diem basis instead of a cost basis, providing an incentive for nursing homes to lower costs, Hindelong said.
``With these changes on the horizon, there’s a clear need to lower costs and therefore a clear need for consolidation in the industry,″ Hindelong said.
The transaction has been approved by the directors of both companies, but still requires the approval of shareholders and government regulators.
The combined company will have revenues of $2.4 billion and less than $1 billion in debt, Bainum said.
``This financial strength will enable us to take advantage of greater expansion opportunities, both through an aggressive internal facilities development program and through future acquisitions, at the lowest cost of capital in the industry,″ Bainum said.
Manor Care operates 18 facilities in Maryland, but does not expect any job losses at those facilities as a result of the acquisition. Positions, however, could be cut in Gaithersburg as the two headquarters are combined, said Lee Comas, company treasurer and vice president of finance.
Manor Care employes 708 in Gaithersburg, including 536 in its corporate headquarters, she said.
In addition to its size, HCR is known for its corporate hugging policy.
The company endorses a friendly embrace as a way to boost the morale of its 20,000 employees and residents of its 129 nursing homes.
Harley King, the HCR customer service director, started a program called ``Circle of Care″ in 1988 to create an office atmosphere that would make workers not only want to come to work but to do a good job.
All workers _ executives included _ take an 11-hour training session on how to compliment others when they do a good job, how to be considerate to employees and patients who may be having a bad day, and, of course, how to hug properly.
Bainum, who was listed last year by Forbes magazine as one the country’s 400 richest people and who has considered running for Maryland governor, made headlines in 1996 when he hosted a dinner at his Chevy Chase home widely viewed as a meeting to choose a Democratic challenger to Gov. Parris Glendening, also a Democrat.