A one-time potential suitor is accusing Genesis HealthCare and Welltower of using a “flawed process” to reach an $880 million agreement that led to the real estate investment trust terminating leases at 51 Genesis properties.
A firm representing New Jersey-based operator CareOne and affiliate Green Field DES, LLC recently sent a letter to Genesis’ board of directors calling on the group to intervene and correct “false and misleading disclosures to its shareholders and investors” regarding its Welltower deal.
“As Genesis Directors you owe your shareholders fiduciary duties of care and loyalty in conducting the company’s business. Those duties obligate you to maximize the value of Genesis assets and, by extension, protect the value of shareholders’ investments,” the letter stated.
“By refusing to conduct an arms-length transaction, Genesis sold its assets via an unfair process that failed to maximize their value for your shareholders. That flawed process, and its resulting unfavorable terms for your shareholders, raise serious concerns that you, as directors, have breached your fiduciary duties,” it added.
A copy of the letter was also sent to Welltower CEO and Chief Investment Officer Shankh Mitro and Board Chair Kenneth J. Bacon.
Requests for comment by McKnight’s Long-Term Care News to Genesis HealthCare and Welltower were not returned by production deadline.
CareOne’s complaint stems from its effort to negotiate and potentially purchase some of Genesis’ assets after learning the company was moving forward with a restructuring plan to improve its financial and operational stability, which had been damaged by the pandemic.
CareOne claims Genesis rebuffed its efforts to negotiate on “multiple occasions” before CareOne leaders learned of the real estate agreement with Welltower. That deal was announced in early March.
The operator claimed it approached former Genesis CEO George Hager with an acquisition proposal, but he refused to engage “claiming the entire company was not for sale.” CareOne’s December effort included a proposal to purchase four of Genesis’ skilled nursing facilities in New Jersey for $77.5 million, which was later refused, according to the letter.
CareOne said it again “conveyed its interest” in purchasing some or all Genesis assets at a “premium price.” The operator added that Genesis however sold a “majority interest in its skilled nursing assets” to an affiliate at a “substantially lower” price than what it had proposed to pay.
The letter suggested the transaction “may have benefitted outgoing Genesis leadership,
in the form of a bonus, and benefited the newly-installed chairman, who is affiliated with the
new operator, but it did the opposite for Genesis shareholders: in recent weeks, Genesis share price has consistently declined.”
“You have an obligation to notify both shareholders and regulators of the terms of the transaction, and the process by which Genesis conducted the sale. The SEC needs to be made aware that your current statements about the termination of the relationship between Genesis and Welltower are inadequate and misleading,” the letter concluded.