Beverly Enterprises May Get Buyout Offer : Senior Executives, Outside Investors Consider Taking Chain Private

Beverly Enterprises Inc., the nation’s largest publicly owned nursing home chain, disclosed Tuesday that some of its senior executives and outside investors are considering taking the company private.

Such a buyout could total as much as $2.2 billion, industry analysts said, and would come at a time when Beverly’s stock is considered undervalued and a possible takeover target.

Beverly’s stock increased $3.125 a share and was the second most actively traded stock on the New York Stock Exchange, closing at $20.50. The stock had climbed $1 per share Monday amid speculation, and trading was briefly halted Tuesday for the announcement.

The Pasadena-based nursing home chain said it set up a special committee composed of its four outside directors to study the buyout move. However, Beverly officials said in a prepared statement that there “is no assurance that any proposal will be made, or that, if made, it would be acceptable to the company.”

Outside directors David H. Merrill, a Pasadena physician, and William F. Rinehart, a Los Angeles lawyer, declined to comment. The remaining outside directors could not be reached.

But Robert Van Tuyle, the 74-year-old chairman and chief executive of Beverly, said in an interview that he and company president David R. Banks are among the investors considering making an offer. He would not identify the outside investors involved.

Industry sources speculated that because of the vast amount of money that would be needed to finance the deal, any Beverly buyout would probably involve a major New York investment banking firm, such as Forstmann, Little & Co. or Kohlberg Kravis Roberts & Co.

Borrowed Funds

In a leveraged buyout, a target company is acquired largely with borrowed funds that are paid off through the sale of its assets or with its operating revenue.

Beverly had revenues of $1.7 million in 1985 from 1,200 nursing homes in 46 states, but lower interest rates and Beverly’s undervalued stock have created a particularly attractive climate for a buyout move now, Beverly officials and industry analysts agree.

“It makes all the sense in the world,” said Carl Sherman, a vice president at Oppenheimer & Co. in New York. “The value of the company is vastly understated.”

Van Tuyle said, “The health care industry seems to have lost its luster as far as the public is concerned. And we feel this is a unique opportunity to bolster the value of the company. Our stock has been in decline of late. . . .”

Beverly, which this month agreed to pay more than $600,000 in fines to settle allegations this summer that nine patients died in its nursing homes because of improper care, has been particularly hard hit by lackluster investor interest.

Since hitting its 52-week high of $22.25 in early July, Beverly’s stock tumbled to as low as $14.75 at the beginning of October.

Beverly Enterprises was founded as a partnership in 1963 and went public three years later. For the nine months ended Sept. 30, the company’s net income rose by 12% to $46.6 million on revenue of $1.49 billion, compared to a year earlier when it netted $41.7 million on revenue of $1.24 billion.