ARV Assisted Living Jockeys to Be Survivor

ARV Assisted Living stands to receive up to $135 million from a major Wall Street investor to bolster its flagging effort to become a leader among operators of homes catering to the frail elderly.

ARV and Prometheus Assisted Living LLC, an affiliate of Lazard Freres Real Estate Investors LLC, said Prometheus will buy about 9.6 million newly issued shares of ARV for $14 a share and take a 49.9% stake in the company.

ARV’s stock closed Tuesday at a 52-week high of $12.31 a share, up 94 cents, in Nasdaq trading. ARV shareholders must approve part of the deal.

Lazard is following the lead of other big investors that have acquired big stakes in companies that operate assisted living facilities and nursing homes--an industry experiencing explosive growth.

And as consolidation looms for the industry, ARV is jockeying to become a survivor. “If we stood still, we would be a target,” said Gary L. Davidson, ARV’s chairman and chief executive.

As part of the deal, ARV is putting in place a poison pill to thwart an unwanted takeover.

ARV, which went public in October 1995, has become one of the largest companies in the industry. But it has failed to deliver on promises for earnings growth, analysts say.

It also has stumbled in its effort to expand its network of “assisted living” facilities around the country.

In Ohio, for instance, it has faced unexpected delays in converting retirement homes it acquired into facilities that can accommodate elderly residents who need assistance with daily activities. ARV also faced delays in constructing its own facility in Beaumont, Texas.

In addition, analysts say, ARV has been forced to pull back from its aggressive acquisition strategy, as growing competition has driven up prices of attractive properties. ARV has also been frustrated by limited sources of capital. Its stock price--lower in comparison to the value of its assets than that of competitors--makes a public stock offering unattractive.

Another ARV financing vehicle--selling its properties to an investment company that leases them back to ARV to operate--is costly, analysts say.

As a result, the company’s investment banker, Salomon Brothers, searched for financing options to fuel ARV’s growth, and put the company in touch with Lazard Freres.

Indeed, Goldman Sachs recently purchased a Florida retirement home operator, Integrated Living Communities Inc., for $77 million.

ARV officials said Lazard’s investment should enable the company to build and run more of its own properties and finance more expansions through acquisition. Davidson noted Lazard’s expertise should help ARV “refine its strategy and execute it a little better.”

Lazard will add four members to ARV’s seven-member board and will assist ARV in hiring a chief operating officer. Davidson, 62, who owns 10% of the company, said he will remain as ARV’s chairman and chief executive under a three-year management contract.

Analysts applauded the arrival of ARV’s big new investor.

“The company to date was focused mainly on growth and adding capacity through acquisitions and they reached a point where they needed to take a breather to assimilate a lot of the growth they’ve experienced,” analyst Frank Morgan said.

He predicts that, with Lazard’s guidance, the company will pursue slower, more methodical growth through development of its own properties.