Ventas Inc. (VTR, Financial) is reportedly set out to purchase Ardent Medical Services Inc. in a transaction valued at $1.75 billion. The purchase will be made in outright cash and the nursing facilities will be converted to a real-estate investment trust. Ventas will generate funds for the transaction on a leverage neutral basis, with money coming from dispositions, bank debt, long-term debt, equity capital sources and loan repayments. Share value of the Chicago-based company rose 2% in light of the announcement in pre-market trading.
The intrinsic deal details
In a separate statement, Ventas plans to spin off the post-acute/skilled nursing facility portfolio into a REIT. Raymond Lewis, president of Ventas, will become the CEO of the spinoff. Mr. Lewis said that consolidation opportunities will now surface, given the acquisition plan. Debra Cafaro, CEO and chairman of Ventas, will continue functioning in the same position. Douglas Crocker II, director of Ventas, will become the non-executive chairman of the board. Ventas, however, will not change its president. The new spinoff will have around 355 nursing facilities that will be taken care of by 44 local as well as regional care providers. Around $240 million to $245 million of operating funds are expected to be generated in the first year of the completion of the deal. That means FFO per share would be 8 to 10 cents. Debra Cafaro said that the high-quality assets of Ardent along with the strong management team will create strong growth opportunities in the hospital real-estate field. She also said that the transaction will help Ventas to diversify its holding portfolio in property type as well as operator type. Ventas also plans on taking part in the future acquisitions of Ardent. The transaction is expected to close by the middle of this year.
Once the deal is through, Ardent's hospital operations will be separated from Ventas' real estate division. All the hospital operations will be sold off to an altogether new entity that is owned by Ardent. Ventas will reportedly have 9.9% stake in these operations. The EBITDA-RM to rent coverage ratio is estimated to be 2.9 times in the first year after the deal is sealed. Around 10 Ardent hospitals like Oklahoma and Lovelace Health System, Hillcrest Healthcare System, etc., will be owned by Ventas. Officials will divert their efforts on improving women's health, acute care, rehabilitation that will comprise around 2,045 beds in 3.2 million square feet.
The financial playbook
For the fiscal quarter ended December 2014, Ventas reported an EPS of $1.15 while analysts' forecasted an EPS of $1.13. The company is yet to announce its current quarter earnings. According to a data compiled by Zacks Investment Research, estimated EPS for the quarter is $1.14, based on eight analysts' forecast. Ardent, on the other hand, earns around $2 billion in annual revenues, 50% of this revenue comes from the wallets of commercial payers. The medical company is owned by private equity funds, by Welsh, Carson, Anderson & Stowe.
Investors’ takeaway
Ventas shareholders will get a common share of the new company (“SpinCo” REIT) for every four shares that they currently have. The amount will, however, qualify as a tax-free distribution to the shareholders of Ventas. After the spinoff, the shareholders will own shares in the spinoff company as well as Ventas. Ardent shareholders have a reason to celebrate as well. The $75 million that will be generated through the deal, will be distributed amongst the shareholders. Furthermore the larger benefit will reach out not just to the shareholders, but even the U.S. mass population. Due to the addition of more emergency rooms and increase medical admission facilities, the insured and non-insured U.S. citizens will reap the benefit from the rise in the resource.
