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Published: Thursday, 4/12/2007

Toledo-based Manor Care hints it's for sale

BY JON CHAVEZ
BLADE BUSINESS WRITER
Manor Care, headquartered on Summit Street downtown, has
60,000 employees total and 1,300 in metro Toledo. Manor Care, headquartered on Summit Street downtown, has 60,000 employees total and 1,300 in metro Toledo.
LONG / BLADE Enlarge

Manor Care Inc., one of Toledo's largest and most successful companies with public stock, may be up for sale.

The nursing home giant nationally said yesterday that it has hired a financial adviser to help enhance its shareholder value, a phrase that industry analysts figure means the company is for sale.

But analysts said the firm may be talking with private equity firms that have had interest in other health-care firms or to investors who could decide to end the public stock and instead operate privately.

The announcement could be "the first step in essentially putting themselves up for sale," said Robert Gold, analyst with Standard & Poor's.

"When you put out a statement of this type, I think you're trying to make potential bidders aware that you'd consider [an acquisition offer]," he said.

Manor Care, with 551 nursing homes and rehabilitation centers across the country, said it retained JPMorgan & Chase Co. as a financial adviser to review strategic financial and related business alternatives.

Ormond Ormond
Enlarge

In a statement, Chairman Paul Ormond said the company has a very strong financial position in the health industry, allowing it to actively evaluate "a full range of opportunities for further strengthening our strategic position and maximizing value for our shareholders."

It is unclear whether the company has been approached by prospective investors or what a buyout would mean for its operations.

Just three months ago, when the company's stock rose dramatically for a second straight day, analysts speculated that the firm could become an acquisition target. Company spokesman Rick Rump told The Blade at the time that Manor Care was not for sale and that there was "nothing in the works."

The firm's shares rose a hefty $5.93 yesterday to close at $61.68 on the New York Stock Exchange, with 6.2 million shares traded, or eight times normal volume. The stock has climbed steadily since Jan. 1, when it traded at $47.

The company, with 60,000 employees total and 1,300 in metro Toledo, had a profit last year of $167 million on sales of $3.6 billion. It was ranked No. 552 a year ago on the Fortune magazine list of big firms and trails only Dana Corp., Owens-Illinois Inc., and Owens Corning in revenue size in northwest Ohio. Its headquarters is on Summit Street in downtown Toledo.

Jeffrey Hoffman, of Buckingham Research Group Inc., said Manor Care is "the gold standard of that industry and 90 percent of that is because of Paul Ormond and the way he has run that company."

He added: "There's a lot of private equity money floating around and some fancy prices being paid for nursing home companies. If [Mr. Ormond] has been approached with an offer, he's obligated to at least evaluate what he's been approached with."

The board of directors of Manor Care also thinks highly of its chairman and chief executive officer. Mr. Ormond received $17.3 million last year in pay, perks, and stock awards.

Mr. Rump, the company spokesman, would not elaborate on why the company issued its announcement. The company, he said, is looking at any and all types of potential moves and strategies, and "when this whole process is completed, we could say we're just fine with the way things are." There is no timetable for a decision, he added.

The Toledo firm's statement could mean as little as restructuring its debt to as much as a grand leveraged buyout.

The statement resulted in analyst Gary Taylor of Banc of America Securities raising his stock price forecast from $56 to $65 for the firm in the next 12 months. Mr. Gold of Standard and Poor's increased his target forecast to $69.

Manor Care has been among the most solid financially in the health-care industry, where many firms have entered bankruptcy in recent years or otherwise struggled. It owns a significant portion of its real estate, has cash flow of $380 million, and gets a large share of its revenue from Medicare reimbursement, rather than the lower-paying Medicaid. Plus, it has pursued more short-term stays in its rehabilitation and nursing facilities for people with insurance, a tactic that generates strong income and profits.

Frank Morgan, analyst at Jeffries & Co., said, "It certainly would not be a big surprise" if the Toledo firm was talking already to private investors, rather than merely advertising its availability. After all, he said, the industry has been rife with one acquisition after another and private equity investors using leverage buyouts have been common of late.

HCA Inc., one of the nation's largest health-care organizations, was bought for $32.7 billion in November by Bain, Kohlberg Kravis, Merrill Lynch's buyout unit, and others. Genesis HealthCare Corp. was purchased in January for $1.7 billion by private equity firms Formation Capital LLC and JER Partners. Other deals are pending.

Mr. Morgan said, "So you have a very active private equity market and operations going extremely well for Manor Care [and] a very strong debt market, which makes a very attractive deal in financing terms."

From a regulatory standpoint, the Toledo company is not obligated to disclose whether it is in discussions with buyers until it receives an actual offer. Key issues from a buyout would be the fate of the firm's management and its Toledo headquarters.

Under a public merger or acquisition, both might be threatened. But Mr. Hoffman of Buckingham Research said private investors want a return on their investment and may be more likely to keep senior executives.

"Private investors would be dumb to take them over and not keep current management in place," he said. "The thing that makes Manor Care what they are is their outstanding management. Why would you want to fool with that?"

Less clear, though, is keeping the downtown headquarters, he said. In the local area, it has corporate offices, five skilled nursing homes, one assisted living center, eight respiratory or therapy clinics, and one hospice office.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128.



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