Quality Care Properties discloses two merger-related lawsuits as potential suitor withdraws

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Quality Care Properties discloses two merger-related lawsuits as potential suitor withdraws
Quality Care Properties discloses two merger-related lawsuits as potential suitor withdraws

A potential rival to real estate investment trust Welltower's plans to merge with Quality Care Properties has withdrawn its acquisition proposal and no longer is considering a transaction with the company.

QCP made the disclosure Monday in a filing with the Securities and Exchange Commission in which it also revealed two class action lawsuits related to the proposed Welltower merger.

The unnamed company that was considering making an offer, which was referred to in the SEC filing as “Financial Sponsor B,” informed QCP on Sunday that it no longer was interested, QCP said. QCP had said June 21 that it believed Financial Sponsor B was continuing to conduct due diligence in anticipation of possibly making a merger bid; that bid never came.

QCP had revealed the potential new interest in a June 12 SEC filing, noting that it “could reasonably be expected to lead to a ‘superior offer' ” to the one announced in April with Welltower. The board continued to recommend that shareholders vote to approve the merger with Welltower, however.

In the Welltower deal, the REIT would acquire the assets of QCP for $20.75 per share while nonprofit health system ProMedica simultaneously would acquire QCP tenant HCR ManorCare, including assisted living and memory care communities as well as skilled nursing facilities, for approximately $1.35 billion. ManorCare would become a wholly owned indirect subsidiary of QCP.

A new 80/20 joint venture between Welltower and ProMedica would lease ManorCare's real estate to ProMedica for 15 years. ProMerica also would acquire ManorCare's operations.

Two class action lawsuits

Financial Sponsor B's withdrawal comes less than a month from the July 25 special meeting at which QCP shareholders are expected to vote on the Welltower merger. The company's board already has approved the deal. Two apparent shareholders, however, have filed class action lawsuits to try to delay or prevent it, QCP said Monday.

“The defendants believe these actions are without merit,” the company said in the SEC filing.

Todd Sanderson and Michael Kent — each of whom “alleges he is a stockholder,” QCP said — filed the civil actions June 25 and June 27, respectively, in U.S. District Court for the District of Maryland. They claim that QCP and its directors violated the Exchange Act because some public disclosures contained in a June 21 proxy statement related to the merger allegedly are “false and misleading,” the company wrote.

Sanderson's lawsuit claims that the proxy statement is missing financial projections for the company as well as some information regarding the sale process leading up to the merger agreement. “It appears that that the merger consideration fails to adequately compensate the company's shareholders in exchange for the assets on the company's balance sheet,” the complaint states.

Sanderson also said that the proxy statement “fails to provide any substantive information” about Financial Sponsor B and its acquisition proposal.

Shareholders need more information to be able to vote, he said.

Kent's lawsuit makes similar claims to those made by Sanderson and also said it was unclear whether QCP financial adviser Lazard Freres & Co. LLC has a conflict of interest related to the merger. Goldman, Sachs & Co. LLC also advised QCP.

“The proxy statement fails to disclose whether Lazard has provided services to Welltower or its affiliates in the past, as well as the amount of compensation received for such services,” Kent's complaint states. “Full disclosure of investment banker compensation and all potential conflicts is required due to the central role played by investment banks in the evaluation, exploration, selection, and implementation of strategic alternatives.”

The two plaintiffs are represented by different law firms.

They said they are suing on behalf of all of the company's shareholders except for the defendants in their lawsuits and people related or affiliated with them, according to QCP. Both lawsuits name QCP and board members Mark Ordan (also CEO), Glenn Cohen Jerry Doctrow, Paul Klaassen, Philip Schimmel, Kathleen Smalley and Donald Wood.

Sanderson, the company said, is seeking an injunction that would prevent the company from proceeding with the July 25 special meeting at which the merger vote is expected to take place and also would prevent QCP from finalizing the merger until additional public disclosures are made. Sanderson also is requesting unspecified financial damages and payment for expenses related to the litigation.

Kent, according to QCP, is seeking an injunction that would prevent the company from consummating the merger, rescission of the merger, an award of damages in an unspecified amount if the merger is consummated, direction to disseminate a proxy statement with revised disclosure, declaration that the defendants violated various sections of the Exchange Act, and a monetary award to cover litigation expenses of an unspecified amount.

See the articles below, under “Related Articles,” for additional information regarding Welltower and QCP.

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