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Manor Care in $5B merger
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June 10, 1998: 12:23 p.m. ET
Firm joins Health Care & Retirement to form largest long-term care provider
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NEW YORK (CNNfn) - In a stock swap that will create the nation's largest long-term health-care company, Manor Care Inc. said Wednesday it will merge with competitor Health Care & Retirement Corp. in a deal valued at $5 billion.
The combined company, to be called HCR Manor Care, will be based in Toledo, Ohio, the current headquarters of Health Care & Retirement.
Under terms of the deal, each share of Manor Care will be exchanged for one share of Health Care stock.
The merger, accounted for as a pooling of interests, already has been approved by both companies' boards and is expected to close in the fourth quarter.
"The combination of these two preeminent long-term care providers will create an important new force in the industry, with increased growth potential from an already rapidly growing base," said Paul Ormond, president, chairman and chief executive of Health Care. "The combination of our two companies will enhance our ability to offer superior and innovative patient services at a time when the long-term care industry is both growing and consolidating."
Ormond will become president and chief executive officer of the new company.
Stewart Bainum Jr., chairman and chief executive officer of Manor Care, will become chairman of the combined company.
Reaction to the news from shareholders, however, has been less than enthusiastic. So far, Wall Street has hardly blinked an eye.
Shares of Health Care (HCR) fell 7/8, or 2.3 percent, to 36-7/8 in early trading on the Big Board. (Click here to check out HCR's stock activity)
Manor Care (MNR) stock edged up 1/8 to 31-3/8, also on the New York Stock Exchange. (To track the performance of Manor Care shares click here)
The merger of Manor Care and Health Care, which includes the assumption of debt, will be tax-free to Manor Care shareholders and is expected to be contribute immediately to Health Care's earnings.
Analysts say the consolidation craze that has swept over the long-term care market in recent months has been triggered by changes in the government's health-care reimbursement system.
"I think that in the long-term care market all companies are fair game for mergers at this point," said S&P Equity Group analyst Robert Gold. "All of these companies are trying to get their cost structures down to cope with the changes taking place in Medicare."
Gold said a new Medicare reimbursement system that will pay providers a fixed rate per patient is being phased in throughout the country beginning in July.
In the past, providers were reimbursed for the cost of the patient's stay in the facility plus a percentage based on the services provided.
"This way [Medicare] pays a flat rate and [the providers] will only cash in if they can keep their actual cost below the fixed rate," Gold said.
Other analysts, however, say Manor Care and Health Care are less reliant on federal reimbursement than most of their competitors.
Wheat First Butcher Singer analyst Joel M. Ray said the two long-term care providers are much larger than many of their nursing home competitors that have merged recently.
The companies also differ slightly in that they generally are considered to be "higher end" players in the market -- catering to a private paying clientele and relying less on government reimbursement.
Financially, he added, both companies are well positioned for growth.
"Manor Care has been a very solid company and a consistent grower," he said.
Over the last few years, Manor Care has implemented a massive restructuring effort designed to break up its lodging and long-term care divisions into separate businesses.
As a result of the merger, however, the company said its planned separation into a health-care services management company and a health-care real estate and development company will be canceled. 
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Manor Care
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