ARV Chief Quits After Buyout Bid Is Rejected

The chief executive of ARV Assisted Living Inc. unexpectedly resigned Wednesday, one day after the company rejected a buyout bid from a major competitor.

The Costa Mesa company said Gary L. Davidson is stepping down as chairman, CEO, president and a director after discussions with the board. ARV gave no reason for the move.

John A. Booty, who founded the company with Davidson, will serve as chief executive officer until the company finds a new leader. Booty retired as president last year but remained on the board.

Board member John J. Rydzewski, a partner in a small New York investment banking firm, was appointed chairman.

A company spokesman said Davidson’s departure was unrelated to ARV’s decision to reject a bid by Seattle-based Emeritus Corp. to buy the company for $210 million, plus assume $91 million in ARV debt.

ARV said it favors its previous plan to allow an affiliate of New York investment firm Lazard Freres & Co. to buy half the company, a deal that shareholders still must approve. The company said Davidson, who holds 8.5% of ARV’s stock, intends to vote in favor of the Lazard proposal. Davidson could not be reached for comment.

The news of Davidson’s departure caught analysts off guard but did not seem to rattle investors. ARV stock closed Wednesday at $16.25, up 25 cents a share, on the Nasdaq market.

Analysts predicted that the jockeying between Lazard and Emeritus for control of ARV is not over.

“We haven’t heard the last of this in terms of bids from either Lazard or Emeritus,” said Scott D. Mackesy, an analyst with Morgan Stanley Dean Witter. “It’s something that’s going to have to play out over the next couple months.”

ARV, which operates 49 assisted-living communities, most of them in California, is one of the largest companies in a mushrooming industry that offers living quarters for the elderly and help with such activities as eating, bathing and taking medications.

ARV has needed cash to fuel its expansion plans. Offering one possible solution, a Lazard Freres affiliate said in July that it plans to buy as much as 49.9% of ARV’s common stock for $14 a share, or as much as $135 million.

The new chairman, Rydzewski, who has been with ARV since it went public in 1995, was in charge of reviewing the Lazard proposal.

When the deal was announced in July, Davidson said he would remain as ARV’s chairman and chief executive under a three-year management contract.

Despite Davidson’s departure, analysts were optimistic Wednesday about what the recent flurry of activity portends for ARV.

“You have two seemingly sophisticated investors willing to pay this price, which means the stock is probably worth much more,” said Fred Lynn, president of F.A.L. Capital Management Inc., a Scottsdale, Ariz., money management firm. “This is just another example of how this industry’s consolidating at a torrential rate. It’s a very desirous industry to be in.”

Emeritus President Raymond Brandstrom said Davidson’s resignation will have no impact on the Seattle company’s offer, which amounted to $16.50 a share.

“We have made a full and fair value offer,” he said, “and we’ll just have to see where that takes everybody.”