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Published: Friday, 7/27/2007

Manor Care profit falls despite revenue gain

BY HOMER BRICKEY
BLADE SENIOR BUSINESS WRITER

Manor Care Inc. reported to shareholders yesterday that its latest quarterly earnings were crimped by the costs of evaluating a possible sale and by greater-than-normal stock compensation costs because of the dramatic rise in the nursing-home firm's share prices in recent months.

In early New York Stock Exchange trading after the earnings release, Manor Care shares fell as much as $2 but rebounded somewhat to $62.03, down 72 cents or 1 percent for the day.

However, that leaves the stock down nearly $5 from the buyout price offered by the Carlyle Group, a global private-equity firm in Washington, that this month bid $6.3 billion for Manor Care's stock and debt to take the Toledo company private.

Analysts said yesterday they believe many investors overreacted to bad news about big corporate buyouts stalling because of credit markets tightening in the aftermath of the subprime-lending debacle. Several analysts said they believe the acquisition of Manor Care by Carlyle will happen, as soon as three months from now, but apparently some investors don't.

The Toledo nursing home giant reported that, despite revenues increasing 7 percent to $958 million in the quarter, its profit was $43.6 million, or 54 cents a share, down 4 percent from $45.6 million, or 58 cents a share, in second-quarter 2006.

The company said the unusual costs, plus conversion of much of its holdings in convertible bonds into stock, took about 11 cents a share off its profit.

The company declared a quarterly cash dividend of 17 cents a share, payable Aug. 27 to holders of record Aug. 13.

The disparity between Manor Care's current stock price and the buyout offer price may be a puzzlement to the average investor but not to the analysts.

"The problem is many of these takeover buyers are not finding debt available at the right price," said Elliott Schlang, an analyst and founder of the Great Lakes Review in Cleveland.

Mr. Schlang, whose firm is now owned by Soleil Securities Corp., noted that a number of big takeovers have been delayed by credit-market woes, including the buyout of Chrysler Croup by Cerberus Capital Management LP.

"I still believe the Manor Care deal will go through," said Mr. Schlang. "But I think there's been some confusion [in investors' minds]."

Some investors and analysts think it's possible another takeover offer may be forthcoming, for more than $70 a share.

Manor Care and the Carlyle Group both have a powerful incentive to make the deal happen.

An 81-page "merger agreement" between Carlyle and Manor Care, filed this month with the U.S. Securities and Exchange Commission, says that if the buyout is terminated there could be a penalty of up to $250 million against the company causing the termination.

Contact Homer Brickey at:

homerbrickey@theblade.com

or 419-724-6129.



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