Judge approves HCR ManorCare's bankruptcy plan

6/21/2018

A federal judge in Delaware has approved HCR ManorCare’s latest plan to emerge from bankruptcy protection under the control of ProMedica and Welltower, though the deal still has some hurdles to clear. 

Earlier this spring, the Toledo-based nursing home operator filed a expedited bankruptcy plan to effectively transfer ownership of itself to Quality Care Properties Inc., a Maryland-based real estate investment trust that was owed tens of millions of dollars in unpaid rent by HCR ManorCare

But after Judge Kevin Gross of U.S. Bankruptcy Court approved that plan, ManorCare and QCP announced they had struck a new deal with ProMedica and Welltower.

Under that agreement — which Judge Gross signed off on Thursday — Welltower would pay $20.75 per share, or $1.95 billion, to purchase Quality Care Properties, while ProMedica would pay $300 million in cash and assume $1.1 billion in ManorCare debt in return for control of its nearly 500 assisted living, skilled nursing, and home-health and hospice centers. ProMedica’s acquisition of the HCR ManorCare business is predicated on the sale of QCP to Welltower.

Welltower and ProMedica would then form an 80-20 joint venture that would own the real estate related to the ManorCare business and lease that back to ProMedica. 

It’s a complicated deal, but one that has big implications for Toledo.

ManorCare, the nation’s second-largest nursing home operator, has more than 700 employees at its downtown corporate headquarters and hundreds more at its area care facilities. ProMedica would immediately expand its footprint nationwide and be launched deep into the post-acute care sector. And Welltower, a real estate investment trust also headquartered in Toledo, would further its vision of being an active partner in America’s health-care delivery system rather than just a landlord.

“I think this is a very compelling opportunity for both Welltower and ProMedica. ProMedica sees this real estate beyond the classic view of a skilled nursing facility. What these are delivering are new care sites for ProMedica to extend its health-care delivery model now to 30 states,” Welltower Chief Executive Officer Tom DeRosa said at the time the deal was announced.

But despite the court’s approval, it’s not a done deal. 

Quality Care Properties shareholders must still give their approval. But more than that, QCP announced last week it had received interest from an unnamed third party during the 45-day period it had to solicit additional bids. 

In a June 12 statement, QCP said the interest “could reasonably be expected to lead to a superior offer,” though the company’s board had not yet made that determination and was still recommending that shareholders approve the sale to Welltower. QCP has not offered any additional comment or made any new regulatory filings in relation to that bid. 

On Thursday, QCP scheduled a shareholder meeting on July 25 for the purpose of voting on the Welltower acquisition.

While those developments do move the deal with Welltower and ProMedica closer to fruition, experts say they aren’t an indication that QCP has abandoned the possibility of reaching a deal with that unnamed third party.

"If tomorrow this mysterious buyer offers them $25 a share and it's legitimate, then they've gotta put things on hold,” said Steve Monroe, a partner at the Connecticut health-care research firm Irving Levin Associates Inc. “Until they see something they're going to continue to go on with their deal."

Still, investors haven’t discounted the possibility of the other bid coming in higher.

“Obviously the market thinks something’s going to happen because the stock has certainly been well above the $20.75 price,” Mr. Monroe said.

On Thursday, shares closed down 4 cents at $21.94.

Neither ProMedica nor Welltower had much to say about the deal on Thursday. 

A ProMedica spokesman told The Blade the company is aware of the developments but had no additional information to provide. A spokesman for Welltower referred The Blade to a question-and-answer primer for investors it filed Thursday with the U.S. Securities and Exchange Commission.  

Contact Tyrel Linkhorn at tlinkhorn@theblade.com, 419-724-6134, or on Twitter @TyrelLinkhorn.