Shareholders OK Welltower, ProMedica acquisition of HCR ManorCare

Blade, The (Toledo, OH)

July 26--Shareholders of Quality Care Properties Inc. on Wednesday morning approved a $3.3 billion deal whereby the Maryland-based real estate investment trust and its prize asset, HCR ManorCare, will be acquired by Welltower Inc. and ProMedica.

The decision was announced following a special shareholders meeting held at Quality Care Properties headquarters in Bethesda, Md.

"We thank our stockholders for their support and look forward to completing the merger," Mark Ordan, QCP's chief executive officer, said in a statement following the meeting. A total of 76,429,143 votes were cast in favor of the deal, 2,895,332 against it, and 885,264 were abstentions.

Under terms of the deal first announced in April, Toledo-based Welltower, which also is a real estate investment trust, was to purchase QCP for $20.75 a share, or about $1.95 billion.

ProMedica, the health care system headquartered in Toledo, would then buy the operations of HCR ManorCare for $300 million in cash and the assumption of the eldercare operator's $1.1 billion worth of debt.

Welltower and ProMedica then planned to form an 80-20 joint venture, to be known as Meerkat LLC. It would assume ownership of all ManorCare properties, which then would be leased back to ProMedica.

WATCH: ProMedica's Randy Oostra on ManorCare acquisition

The planned acquisition was to result in ProMedica becoming a $7 billion health-care entity and the nation's 15th largest not-for-profit health system by revenue.

However, the purchase of ManorCare was expected to add significantly to ProMedica's debt load.

On Tuesday in anticipation of shareholders giving their approval, bond rating agency Moody's Investors Service said it was putting "ProMedica Health System's A1 rating under review for downgrade, affecting approximately $420 million of debt."

While Moody's acknowledges the deal will double ProMedica's revenue base of $3 billion in fiscal 2017 and expand the health provider's post-acute and long-term care operations, it also will more than double ProMedica's debt and "significantly dilute" its balance sheet and available cash on hand.

But ProMedica, which declined comment on Wednesday, had long expected such a move by the three major bond rating agencies -- Moody's, Fitch, and Standard & Poor's.

Prior to announcing the deal on April 25, the health provider privately warned all three agencies of the transactions.

"They won't like this," ProMedica CEO Randy Oostra predicted at the time. "But we'll show them the economic models, why it makes sense. We're very comfortable with the financial model."

In its report, Moody's said it believes Welltower's acquisition of QCP would be completed within the next two weeks. Welltower did not respond to requests seeking comment yesterday.

Welltower and ProMedica were the only public suitors for Quality Care Properties. But they were alone in vying for QCP and ManorCare.

Quality Care surprised investors in June by announcing that an unidentified bidder had submitted a new proposal that may have been more lucrative than the $3.3 billion offer from Welltower and ProMedica.

But early this month it was announced that the bidder, who was never identified, had abandoned its plan to acquire QCP and take control of ManorCare -- the nation's second largest nursing-home chain -- which declared bankruptcy on March 4.

Judge Kevin Gross, of U.S. bankruptcy court in Delaware, was handling the ManorCare case and earlier approved the sale to Welltower and ProMedica. QCP's board also had recommended that shareholders approve the sale.

Officials involved in the transaction had said that if Quality Care's shareholders approved the deal, the sale could be expected to close when ManorCare exits bankruptcy. It is unknown when that might occur.

HCR ManorCare operates about 500 assisted living, skilled nursing, and home-health and hospice centers under the ManorCare, Arden Court, and Heartland brand names. It has about 1,700 employees locally and more than 50,000 nationally.

The 1,700 area employees include about 700 at its 333 N. Summit St. headquarters, located across the street from ProMedica's new downtown headquarters.

Contact Blade Business Writer Jon Chavez at [email protected] or 419-724-6128.

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