O.C.'s ARV Offered $210-Million Buyout

By BARBARA MARSH

Oct. 14, 1997 12 AM PT

TIMES STAFF WRITER

COSTA MESA —

As big-stakes competition heats up in the industry that offers living facilities for the nation’s frail elderly, Seattle-based Emeritus Corp. made an unsolicited $210-million bid Monday for ARV Assisted Living Inc. in hopes of thwarting a competing offer.

Lazard Freres & Co. previously had announced plans to acquire 49.9% of Costa Mesa-based ARV.

An ARV spokesman said the board met to discuss the Emeritus offer Monday and plans to respond today. The company declined to offer details.

Analysts say that if Emeritus buys ARV, the Seattle company would become the industry’s largest publicly held company. It would operate 164 homes with apartments for 17,200 seniors in 29 states.

In the Emeritus proposal, ARV stockholders would receive $16.50 a share, or $1.75 more than the company’s Friday closing price of $15.25. Emeritus also would assume $91 million in ARV debt.

ARV shares ran up to a 52-week high of $17.25 in Nasdaq trading before closing at $16.88, up $1.63 for the day. Emeritus closed at $16, off 25 cents, on the American Stock Exchange.

Emeritus said it has acquired 8% of ARV on the open market. The company started buying up ARV stock last spring, and in July quietly offered to acquire ARV for $14 a share, Emeritus President Raymond Brandstrom said. Several days later, ARV announced its agreement with Lazard Freres.

“We were more than surprised,” Brandstrom said.

Lazard Freres’ Prometheus Assisted Living LLC offered $14 a share, or up to $135 million, for a 49.9% stake in ARV. It has already bought a third of that amount, according to regulatory filings.

ARV shareholders have not yet voted on whether the Lazard Freres unit may complete its planned purchase.

A Lazard Freres spokesman wouldn’t say whether Lazard Freres will sweeten its offer.

Investors view ARV as an attractive company in an emerging but highly fragmented industry that helps the elderly with daily living activities, such as eating, bathing, taking medications and getting around.

ARV, in the business since the early 1980s, is one of the largest companies in an industry Wall Street loves because the population over 85 is growing rapidly.

Brandstrom said ARV Chairman and Chief Executive Gary L. Davidson and his team have “done a good job” accumulating properties. He noted that ARV has holdings in California and Ohio--markets that Emeritus has yet to enter.

Emeritus also expects the combined companies would be able to obtain capital at a lower cost to acquire more assisted living facilities around the country.

Brandstrom said the larger company could more easily attract financing from national banks wishing to diversify their loan portfolios.

The acquisition would amount to “a perfect blending of two companies” that could “eliminate redundancies of corporate overhead,” he added.

However, ARV and Emeritus haven’t met Wall Street expectations.

Both have stumbled in their efforts to acquire properties, rent them out and make earnings goals--and both have significant debt on their balance sheets.

In their most recent fiscal years, ARV lost $1.8 million on sales of $81.6 million, while Emeritus posted an $8.2-million loss on sales of $68.9 million.

Analyst D. Scott Mackesy of Morgan Stanley Dean Witter said Emeritus presumably would benefit from an ARV acquisition by trimming duplicate functions.

He said the Lazard Freres deal would enable ARV’s management team to remain in place, while Emeritus probably would manage the business itself if it acquired ARV.

Mackesy noted, however, that big isn’t necessarily better in an industry that must succeed by doing a good job of serving elderly residents in multiple locations. “There are economies of scale to being large, but execution is a local issue,” he said.

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ARV Gets an Offer

Seattle-based Emeritus Corp., which already owns 8% of Costa Mesa-based ARV Assisted Living Inc., has made an unsolicited bid to acquire the rest of ARV for $210 million. Details on ARV and Emeritus:

ARV Assisted Living Inc.

* Headquarters: Costa Mesa

* Chairman: Gary L. Davidson

* Business: Senior residential facilities

* Facilities: 49

* 1997 net sales*: $81.6 million

* 1997 net income*: -$1.8 million

* Status: Public

* Exchange: Nasdaq

* Monday’s closing stock price: $16.88

Emeritus Corp.

* Headquarters: Seattle