Recently, shareholders of healthcare services company,
Sun Healthcare Group, Inc.
) voted in favor of the company's previously announced merger with
Genesis HealthCare, a Delaware-based limited liability company.
Closing of the transaction, which is subject to certain customary
conditions, is expected to be by late fall 2012.
In order to strengthen its core business line while providing
best patient care even amid several ongoing headwinds in the
healthcare industry, Sun Healthcare, in June this year, entered
into a definitive agreement to be acquired by Genesis. Per the
deal, Genesis will acquire Sun Healthcare for $8.50 per share, in
cash, for a total transaction price of $275 million net of cash and
This transaction price represented a 43.1% premium on the
closing price of Sun Healthcare on June 19 (the day before the
announcement) and a 55.6% premium to the volume-weighted average
closing price of $5.46 during the previous 30 trading days.
Sun Healthcare expects that the successful completion of this
transaction will enable the combined entity to ensure a broader
geographic reach and help meet the essential scale to remain
competitive in the post-acute care sector.On a combined basis, the
two companies generated roughly $4 billion in revenue in 2011 and
will have more than 420 facilities and 75,000 employees.
Sun Healthcare is a healthcare services company, serving
principally the senior population, with annual revenues in excess
of $1.9 billion in fiscal 2011 and approximately 28,000 employees
in 46 states. The subsidiaries are providers of nursing,
rehabilitative and related specialty healthcare services primarily
to the senior population in the U.S. They also provide hospice
services, rehabilitation therapy services and temporary medical
staffing services to skilled nursing centers.
As of June 30, 2012, the company's core business was to provide
in-patient services, primarily through 158 skilled nursing centers,
13 combined skilled nursing, assisted and independent living
centers, 10 assisted living centers, 2 independent living centers
and 7 mental health centers with 21,349 licensed beds located in 23
Sun Healthcare suffered several setbacks over the past few
quarters mainly due to declining Medicare rates as mandated by the
Centers for Medicare and Medicaid Services (CMS). As per the final
rule implemented on October 1, 2011, CMS reduced Medicare part A
payment rates by approximately 12.6%.
Added to this, the federal and state governments are currently
adopting numerous initiatives for comprehensive reforms affecting
the payment for and availability of healthcare services. All these
could further reduce funding of the Medicare and Medicaid programs
thereby increasing pressure for the company. Apart from this,
the macro-economic downturn and competitive pricing pressure are
also impacting Sun Healthcare's business.
However, Sun Healthcare remains a lucrative acquisition target
due to its high-quality portfolio and core inpatient services
Moreover, Sun Healthcare's stock price is much cheaper relative to
its peers. We believe that with improved strategic interference,
the Genesis consortium will be able to rejuvenate the business
Currently, we are Neutral on Sun Healthcare. The stock carries a
Zacks #3 Rank (Hold rating) in the short run.
SUN HEALTHCR GP (SUNH): Free Stock Analysis
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