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Healthcare company in bid for elder care firm

June 16, 1997

NEW YORK (AP) - Genesis Health Ventures and two investment funds said Monday they will pay $1.4 billion for nursing home operator Multicare Cos., creating an elder care network reaching from New Hampshire to Washington, D.C.

Genesis, the Cypress Group and Texas Pacific Group created a new company called Genesis ElderCare Acquisition Corp. The $28-a-share buyout marks a 9.3 percent premium over Multicare’s Friday closing price of $25.62 1/2 a share on the New York Stock Exchange.

Multicare’s stock has been trading near its 52-week high of $25.87 1/2, but rose $1.25 to close at $26.87 1/2 a share on news of the acquisition. Genesis stock rose 25 cents to close at $35.37 1/2 a share on the NYSE.

Genesis, based in Kennett Square, Pa., will continue to make more use of its nursing homes by increasing the proportion of outpatient care it provides, chief executive officer Michael Walker said.

``The long-term care industry is dead and a new industry is being created: elder care,″ he said. ``Each elderly person on an actuarial basis consumes $12,000 a year in health care services. That’s what we’re after. We want to provide those services to the elderly and keep them at home, rather than in a nursing home.″

Analysts say the strategy has worked for Genesis. In the company’s second quarter, ended in March, its outpatient specialty care services made up more than $210 million, or 47 percent of revenues. Daily income grew from $28.43 daily for each patient in the second quarter last year to $34.58 in the same quarter this year, a nearly 22 percent increase.

``If you have patients that are using the facility on an out-care basis, you’re getting more leverage out of that facility,″ said Joseph Garner, a securities analyst at Emerald Research.

Multicare is a long-term-care company providing service through 155 facilities with approximately 16,000 beds.

The acquisition makes Genesis the dominant provider of health care for the elderly in Massachusetts and strengthens its operations in Connecticut and Pennsylvania, Walker said. It also adds sites Genesis lacked in Boston and New Jersey, and puts Genesis within striking distance of New York City, where there are no public companies providing health care services to the elderly.

The boards of Genesis and Multicare have approved the deal, which still requires regulatory approval. It is expected to close by the end of September.

Genesis Health Ventures, which serves 100,000 patients daily, owns 42 percent of the common stock of the joint venture, Genesis ElderCare Acquisition Corp., while Cypress and Pacific Group will own the remaining 58 percent.

Multicare generated $675 million in revenue in the first quarter, and had $342 million in non-convertible debt outstanding as of March 31.

Genesis has contracted with the joint venture to manage Multicare’s operations for an annual fee of 6 percent of revenues.

The Cypress Group, based in New York City, manages a private equity fund with more than $1 billion in commitments.

Texas Pacific Group, based in San Francisco and Fort Worth, Texas, is a sponsor of TPG Partners II LP of Fort Worth, a $2.5 billion investment partnership which specializes in corporate acquisitions.

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