Genesis investors approve merger

Shareholders of Genesis HealthCare Corp. approved a merger agreement yesterday between the Kennett Square company and Formation Capital L.L.C. and JER Partners, Genesis announced.

The vote capped a lengthy and contentious bidding process in which some stockholders and a rival bidder, Fillmore Capital Partners, accused Genesis leaders of favoring Formation Capital/JER even though Fillmore often offered more.

Formation Capital/JER will pay about $1.9 billion, including the assumption of $475 million in debt, for Genesis, which owns more than 200 nursing homes and assisted-living centers in 13 Eastern states. Formation/JER agreed to pay $69.35 per share in cash. If the deal is not completed by July 31, the price will increase about 9 percent per year.

Genesis, which will keep its name, said it expected the deal to close in July.

Genesis shares closed up 4 cents at $68.33 yesterday on the Nasdaq.

Nursing-home chains have become more attractive to private-equity companies in recent years as the health-care providers have repositioned themselves as institutions that provide rehabilitation more cheaply than hospitals, rather than as places where the elderly go to die.

"I think there's a great opportunity in what I call the modernization of skilled nursing," said Arnold Whitman, Formation's chief executive officer. His company owns 85 nursing homes, and manages the property of an additional 180. "I have a very strong belief that there's a lot of opportunity going forward."

Whitman said Genesis was attractive because of its strong management team, its employee morale, and its investment in its buildings. Nursing-home licenses are tough to get now, and many of the Genesis facilities are in desirable locations.

Formation and JER plan to retain ownership of Genesis' nursing homes and assisted-living facilities, but will cede operation of those facilities to an independent company. Whitman hopes that company will be run by Genesis' current management team. "The people that operate the buildings today are going to be the same people who operate them after we close," he said.

He plans to meet with Genesis managers Monday in Kennett Square to discuss that deal. "Our hope is to very quickly negotiate an agreement with them," he said. "We have 45 days to close this deal. It is focus, focus, focus."

Genesis officials did not return calls yesterday.

The new operations company will determine staffing needs, Whitman said. Genesis currently employs 35,500 people.

Fillmore Capital withdrew from the bidding process last week after the Genesis board of directors endorsed the Formation/JER bid and said the company would pay Formation/JER a $40 million termination fee if Genesis accepted another offer. A lawsuit filed by a Fillmore subsidiary in March remains unresolved. The suit contends that the bidding process had unfairly favored Formation.

Ronald E. Silva, president and CEO of Fillmore, said yesterday that his company's interest in Genesis drove up prices, a good thing for shareholders. "The shareholders, in the end," he said, "were benefited immensely by our efforts."