Genesis, Investors To Buy Multicare For $1.4 Bn

Genesis Health Ventures Inc. said Monday it is teaming with two investment companies to buy long-term healthcare company Multicare Cos. Inc. for $1.4 billion.

The transaction will build upon Genesis strategy of creating a healthcare network aimed at keeping the elderly out of nursing homes. It will create a new presence for the company in West Virginia, western Pennsylvania and eastern Ohio, as well as expand its existing role in states like Massachusetts and New Jersey. Our goal is to help these individuals maintain their health and independence ... rather than being institutionalized, said Genesis Chief Executive Officer Michael Walker in a telephone conference call.

In addition to long-term care, Genesis provides doctor services, medical and pharmaceutical supplies and home healthcare. The deal calls for Genesis to join with private investment firms Cypress Group LLC and Texas Pacific Group to form ElderCare Acquisition Corp. and begin a tender offer for Multicare shares at $28 a share. Under the agreement, Genesis will invest $300 million in exchange for about 42 per cent of the new acquisition venture. and Cypress and Texas Pacific will invest $420 million for the remaining 58 percent.

Genesis will have the option to acquire the equity of the new company from Cypress and Texas Pacific after four years, and Cypress and Texas Pacific will have the option to sell their equity of the new company to Genesis after five years.

Texas Pacific is an investment group that recently bought Del Monte Foods Co. and also owns Berringer Wine Estates.

David Bonderman, one of the groups founders, helped pull Continental Airlines out of bankruptcy in 1993 and also has been named chairman of Irish low-cost airline Ryanair.

Cypress was formed in 1994 by a group of merchant bankers who previously worked at Lehman Brothers. Other investments have included Infinity Broadcasting Corp. mobile office firm Scotsman Holdings Inc., and industrial company Amtrol Inc.

The agreement, which was approved by the board of directors of both Genesis and MultiCare, is anticipated to close in the third quarter of 1997.

Multicare co-founders Daniel and Moshael Straus have agreed to tender and vote their shares in favor of the transaction, the companies said.

It will be an unmatched network. I dont think anybody will be able to touch it, said Jean Swenson of Alex. Brown & Sons.

The transaction is expected to be neutral to Genesis earnings in the first 12 months and will add to earnings after that. Walker said the Genesis anticipated $19 million in cost savings from the acquisition.

Multicares stock rose $1.25 to $26.875 on the New York Stock Exchange. Genesis was up 25 cents at $35.375, also on the NYSE.

Hackensack, N.J.-based Multicare, which had first-quarter 1997 annualized revenues of about $675 million, operates 155 facilities with about 16,000 beds.

Bank financing for the transaction will be provided by Mellon Bank, NationsBank, First Union and Citibank. Morgan Stanley and Montgomery Securities will provide a bridge loan commitment and high yield take-out financing.

Montgomery Securities acted as advisor to Genesis and Morgan Stanley acted as advisor to Cypress and TPG.

Walker said Genesis does not intend to focus on acquisitions after the transaction.

We need to develop our infrastructure and our ability to market ourselves to the managed care organizations of the world, he said.