New Mexico Firm to Buy Regency Health
Regency Health Services Inc., a Tustin operator of nursing homes, is being acquired by a New Mexico company twice its size for $369 million in cash, or $22 a share, the companies announced Monday.
Sun Healthcare Group Inc., based in Albuquerque, will also assume about $220 million in Regency’s debt.
The proposed buyout, approved by the companies’ boards, is the latest of several deals announced this year in the rapidly consolidating nursing home industry.
Richard K. Matros, Regency’s chief executive, said recent consolidations have created companies with billions of dollars in sales, putting smaller companies like Regency at a disadvantage. Last year, Regency earned $5.2 million on $558.1 million in sales.
“Why would people on Wall Street bring [acquisition] deals to us when they have $3-billion guys to go to?” Matros said. “That meant we had to size up.”
The Regency deal, together with Sun Healthcare’s planned acquisition of Retirement Care Associates Inc., an Atlanta-based nursing home operator, would make the New Mexico company one of the largest in the industry.
Regency’s stock surged 29% Monday, up $4.81, to close at $21.19, an all-time high in heavy trading on the New York Stock Exchange.
Sun Healthcare shares rose $1.50 to close at $21.63, also in heavy trading on the NYSE.
Assuming regulators and shareholders approve the deal, Matros, 43, and several other top Regency managers plan to leave to start their own local health-care company.
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As part of the acquisition, Sun Healthcare would pay Regency executives, including Matros, a total of several million dollars to buy out their contracts and stock holdings, said Andrew L. Turner, Sun Healthcare’s chairman and chief executive.
About 100 employees at Regency’s corporate headquarters--mostly in financial and accounting areas--would likely lose their jobs, Turner said.
Merger talks aren’t new to Regency and Sun Healthcare. Two years ago, Turner, who has known Matros for about 10 years, approached him about a possible purchase of Regency, Turner said.
However, Regency’s involvement in shareholder litigation at the time prevented a deal, Turner said. The litigation has since been resolved, he added.
This time around, Matros approached Turner. And both believed, at least in a marketplace controlled by managed-care companies, that their companies would be better off together than apart.
Turner says bigger is better, especially in negotiations between nursing home operators and the managed-care industry.
“If one has a larger number of facilities, it’s more likely that you will be able to negotiate than if you have little to offer,” he said.
Sun Healthcare expects Regency’s businesses would strengthen its presence in California. Regency owns 116 nursing homes, including 42 in the state. The company also operates 26 clinics offering rehabilitation therapy, and eight pharmacies.
Sun Healthcare already operates 17 nursing homes in California--16 in the northern part of the state and one in San Diego. The company also operates three rehab clinics, one in Los Angeles, and a pharmacy.
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Earlier this month, Sun Healthcare said the Justice Department had wrapped up a two-year criminal investigation into the company’s billing practices and wouldn’t pursue charges against the company or penalize it. The agency’s civil investigation continues.
If the deal proceeds, Matros said Regency executives who plan to join him in a new venture include its chief financial officer, Bruce Broussard, who will be Matros’ partner; Sherri Medina, a Regency senior vice president; Harold Andrews, a vice president; and Janie Trevor, Matros’ executive assistant.
“It’ll start pretty soon after the deal closes,” Matros said.
The new company would be privately held, located in Orange County, and largely financed by investors other than management, he said. He wouldn’t specify what health-care market the company will pursue.
