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AlerisLife turned down two acquisition offers before ultimately accepting one made by an entity controlled by one of its managing directors, who also is the chair of its board, according to documents filed Friday with the Securities and Exchange Commission.

The Newton, MA-based senior living provider announced Feb. 3 that it would be acquired by ABP Acquisition 2 LLC for almost $44 million based on the unanimous recommendation of a special board committee and approval by the full board. The deal is expected to be completed in the first quarter.

ABP Acquisition 2 LLC is a wholly owned subsidiary of ABP Acquisition LLC. ABP Acquisition LLC is a wholly owned subsidiary of ABP Trust. Adam D. Portnoy, a managing director of AlerisLife and chair of the company’s board of directors, is the sole trustee and controlling shareholder, as well as an officer, of ABP Trust.

Before the Feb. 3 announcement, however, AlerisLife entertained two unsolicited offers to buy the company, according to background information contained in a 49-page filing, one of three AlerisLife submitted to the SEC on Friday.

The first offer came May 19, about three months after the former Five Star Senior Living announced a new name and plans to expand its offerings to include active adult management services and home care and concierge services, two months after AlerisLife closed on a $95 million senior secured term loan, and three weeks after President and CEO Katie Potter resigned, to be succeeded by Chief Financial Officer Jeffrey Leer, first on an interim basis and then permanently.

The SEC filing described the company making the first offer as “Party A” and said it was “a real estate investment management firm” with which AlerisLife and a Portnoy firm “had not previously interacted.” 

Party A offered to acquire all outstanding shares of AlerisLife common stock for $2.19 per share. The closing price of the company’s common stock that day was $1.21.

In early June, AlerisLife “determined that it would not proceed with a transaction with Party A,” for several reasons, according to the filing. Party A’s CEO or financial adviser, however, continued to send emails to the company in June, July, September and October, with AlerisLife last responding in July.

The second offer, from “Party B,” described as “a newly formed LLC,” came Jan. 26, 2023, from the LLC’s “chief executive manager.” Party B “was interested in acquiring the Company for aggregate consideration of $75 million,” AlerisLife said.

Also Jan. 26, according to the SEC filing, the chief executive manager of Party B sent a letter to the person thought to be counsel to ABP Trust “noting that if the Board did not accept the proposal, Party B was prepared to ‘take extensive actions that could cause liability and other economic repercussions for the ABP Trust’ and that Party B hoped ABP Trust would ‘use its influence to ensure that [Party B] does not need to take extraordinary actions.’”

Publicly available information revealed that the LLC had been formed in December 2022, AlerisLife said, and a representative of Party B “indicated that they had no experience acquiring public companies or owning operating companies” and “declined to provide information about how they determined the proposed valuation for the Company.” Additionally, the lender associated with Party B’s proposal said it “had not in the past financed a public company acquisition,” AlerisLife said.

Feb. 1, the special committee of the AlerisLife board “determined that the Party B Proposal would have a low probability of successful completion,” according to the SEC filing. The special board committee asked counsel to write a letter to the LLC “stating that the Board did not intend to engage further with Party B at this time.”

By the time AlerisLife received Party B’s proposal, however, Portnoy already had “expressed a willingness to take the Company private, which he believed would be in the best interests of the Company” because it “would allow the Company’s stockholders to receive greater value for their investment than is reflected in the market’s valuation of the Company and their investment would no longer be subject to the Company’s operational risks and market risks.”

Portnoy made the remarks Dec. 13 during a regularly scheduled board meeting, according to the filing.

“Mr. Portnoy explained his perspective that it would be challenging for the Company to return to profitability while it remained a public company given the incremental public company compliance costs and the complications of implementing significant, costly changes for the long-term benefit of the Company while under pressure from short-term focused investors,” AlerisLife said.

The AlerisLife board formed a special committee consisting only of its independent directors to consider Portnoy’s offer.

The special committee considered “running a formal process to solicit additional proposals” but determined that doing so “would take significant time and would be unlikely to identify a suitable buyer and that any such buyer may not have the ability to obtain the necessary consents for such an acquisition.”

Committee members also thought that any delays might lead ABP to withdraw its offer and agreed that AlerisLife “would remain subject to potential delisting by Nasdaq, which risk they believed outweighed the potential benefits of soliciting other proposals,” according to the filing. Additionally, the committee believed that “if any third parties are interested in acquiring the Company, they would have an opportunity to make a competing proposal to the Special Committee prior to the closing of the tender offer.”

After negotiations, AlerisLife and ABP agreed to terms under which ABP will acquire all of the outstanding shares of common stock of AlerisLife for $1.31 per share, which represented an 85% premium to the average trading price of the last 30 trading days of $0.71 per share at the time of the agreement. The total consideration to be paid to stockholders in the transaction is approximately $43.8 million.

The agreement and merger plan were signed Feb. 2. If the agreement is terminated under certain circumstances, AlerisLife will be required to reimburse ABP up to $750,000 for expenses incurred in connection with the transaction.

ABP Acquisition LLC, Portnoy and ABP Trust collectively currently own approximately 6.1% of the outstanding AlerisLife shares.

Portnoy also is president and CEO of RMR Group, which provides management services to AlerisLife and real estate investment trust Diversified Healthcare Trust, the portfolio of which contained 120 AlerisLife senior living communities operating under the Five Star Senior Living name as of November.

Diversified Healthcare Trust owns approximately 31.9% of the outstanding shares of AlerisLife, agreed to the transaction and agreed to tender the shares that it owns into the offer.

The AlerisLife filing states that the offers from Party A, Party B and ABP are the only ones the company has received in the past two years regarding a potential merger or sale.

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