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Genesis buys out Vitalink
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April 27, 1998: 8:25 p.m. ET
Elder care company swallows competitor for $690M, investors frown
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NEW YORK (CNNfn) - Elder care service provider Genesis Health Ventures Inc. Monday coughed up nearly $690 million to acquire Vitalink Pharmacy Services, the latest power play in its ongoing strategy to diversify market share.
Kennett Square, Pa.-based Genesis will merge Vitalink with its NeighborCareSM pharmacy operations to create a combined pharmacy services business with revenues of nearly $900 million.
The deal, which is subject to regulatory and shareholder approval, is expected to close by the end of the year.
"The acquisition of Vitalink is consistent with our stated goal to significantly expand the specialty medical and community-based services components of our business in fiscal 1998 and will be accretive to earnings per share," said Genesis Chairman and Chief Executive Michael R. Walker. "Together, our more than 100 institutional and community-based pharmacies will serve more than 260,000 long-term care beds, 80 percent of which are located in or adjacent to our five regional market concentrations in the eastern and mid-western United States."
Vitalink, with 172,000 beds, provides medications, consulting, infusion and other health care services to customers in 36 states.
Under the agreement, Genesis will pay roughly $600 million for Vitalink, plus the assumption of $90 million in debt.
The company offered $22.50 per share to acquire all of Vitalink's outstanding shares in a cash election merger.
Vitalink's shares peaked in December for a 52-week high of $26 per share, but have slowly fallen since. Following the announcement, the Vitalink (VTK) closed at $21.50 per share, up $1.69.
Conversely, shares of Genesis closed off 94 cents Monday at $24.81 per share on the news.
According to Walker, the acquisition will position Genesis to broaden its community-based services, the market niche that health care analysts expect to explode in the coming years.
Like most of its competitors, Genesis is transforming itself to compete in the emerging managed care environment, a cost-reimbursement system that requires greater efficiency and streamlined operations.
In the last decade, managed care has all but eliminated the fee-for-service Medicare and Medicaid environment that previously dominated the market.
Manor Care Inc., the holder of roughly half of Vitalink's shares, agreed to exchange all of its Vitalink shares for preferred stock.
Manor Care, (MNR), which will own roughly 18 percent of Genesis' pro forma diluted shares outstanding, will continue to purchase from the Vitalink operations all of its pharmacy and consulting services, said company Chairman and Chief Executive Stewart Bainum, Jr.
Genesis, (GHV), founded in 1985, consolidated its businesses under the brand name Genesis ElderCare two years ago.
Last June, the company teamed with two investment firms to acquire The Multicare Companies, Inc. in a health care venture valued at roughly $1.4 billion. 
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