Welltower merger safe — for now — QCP says, as competitor surfaces

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Springhouse of Pikesville is a ManorCare assisted living community in Pikesville, MD.
Springhouse of Pikesville is a ManorCare assisted living community in Pikesville, MD.

Quality Care Properties said Tuesday that its board continues to recommend that stockholders approve the merger agreement with real estate investment trust Welltower that was announced in April, although it also announced that it is investigating an acquisition proposal from a third party that “could reasonably be expected to lead to a ‘superior offer' as defined in the merger agreement.”

QCP, also a REIT, did not name the potential new bidder.

Mary Ellen Pisanelli, Welltower's senior vice president, legal and administration, told McKnight's Senior Living that the REIT would not be commenting beyond what QCP said in its press release.

The Welltower / ProMedica deal

As part of the previously announced blockbuster deal, Welltower would acquire the assets of QCP for $20.75 per share — or approximately $1.95 billion — 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.

The ManorCare real estate is located across 18 states and includes 160 post-acute communities and 58 assisted living communities, Shankh Mitra, senior vice president of investments at Welltower, said June 6 during a presentation at Nareit REITweek: 2018 Investor Conference. “The rough split of EBITDAR [earnings before interest, taxes, depreciation, amortization and restructuring or rent costs] is 70% post-acute and 30% senior housing,” he added.

Welltower, ProMedica and ManorCare all are based in Toledo, OH. QCP is based in Bethesda, MD.

Special shareholder meeting

QCP shareholders will vote on the Welltower merger at a special meeting, the date of which has not been announced.

June 6, the company filed a preliminary proxy statement with the Securities and Exchange Commission in advance of the expected gathering.

“The board of directors of the company ... has unanimously approved the merger and determined that the merger agreement is advisable and in the best interests of the company and its stockholders. The board unanimously recommends that the stockholders of the company vote for the proposal to approve the merger,” stated a letter to shareholders that was part of the filing.

According to the Welltower merger agreement, QCP shareholders would receive $20.75 per share of common stock. If the merger does not occur before Aug. 25, then shareholders would receive an additional $0.006 per share per day between Aug. 25 and the closing date.

Among other dates in the agreement, the terms also allow QCP and Welltower to terminate the merger agreement at any time before the stockholder vote if the merger has not occurred on or before Oct. 15.

The press release issued by QCP on Tuesday indicates that board members have not revised their decision about the merger.

“The board has not changed its recommendation and continues to recommend that QCP's stockholders vote to approve the merger with Welltower,” according to the release.

Under the terms of the merger agreement, QCP's board must negotiate with Welltower for four days “before making a recommendation change, or in connection with a superior offer, terminating the merger agreement.”

A superior offer is defined in part in the agreement as an offer that “is more favorable from a financial point of view to the stockholders of the company than the transactions contemplated by the merger agreement.”

45-day “go-shop” period

QCP said Tuesday that the third-party acquisition proposal it received for the company came during a 45-day “go-shop” period during which, under the terms of the Welltower merger agreement, QCP was permitted to pursue other offers. That period ended June 9, QCP said.

During the go-shop period, QCP said, representatives of Goldman Sachs & Co. contacted 34 potential parties — “REITs, healthcare providers, operators and other strategic parties, financial sponsors and nonprofit health organizations” — on behalf of QCP to see whether they were interested in acquiring the company.

QCP said it subsequently entered into confidentiality agreements with five of the entities and provided information that led to the acquisition proposal from the potential bidder. “No other parties submitted an acquisition proposal to acquire the company during the go-shop period,” QCP said.

Under the terms of the merger agreement with Welltower, QCP is permitted to “continue to solicit proposals from, furnish nonpublic information to, and engage in further discussions and negotiations” with the unnamed potential bidder. Now that the go-shop period has ended, however, QCP cannot solicit alternative acquisition proposals from or provide confidential information to other third parties.

The potential bidder would need to obtain debt financing and undergo a due diligence review of QCP and HCR ManorCare as well as negotiate a definitive merger agreement before the parties could determine whether they wanted to proceed, QCP said.

“There can be no assurance that the acquisition proposal will ultimately result in a superior offer, and discussions and negotiations with the potential bidder could terminate at any time,” the company said.

If QCP decides to terminate its merger agreement with Welltower to merge with the bidder that was identified during the go-shop period, then it will be required to pay Welltower a $19.8 million fee under the terms of the agreement. If it decides to merge with a different company, then the required payment will be $59.5 million.

QCP stock ended Tuesday at $21.74, up 2.45%. Welltower stock ended Tuesday at $58.31, up 0.01%.

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