Carlyle Taking Nursing-Home Firm Private

$6.3 Billion Deal Extends Company's Flurry of Buyouts

Carlyle Group yesterday announced that it was purchasing Manor Care, a nursing-home operator, for $6.3 billion, the latest in a recent string of multibillion-dollar deals involving the District private-equity giant.

Shareholders in the Toledo health-care chain, which merged with Health Care and Retirement Corp. in 1998, will receive $67 in cash per share, according to the announcement. That price represents a premium of 2.6 percent over the shares' close Friday.

Carlyle's purchase of Manor Care, which was founded 48 years ago by Montgomery County businessman Stewart Bainum Sr., comes on the heels of several big private-equity deals announced in recent days while many have speculated that the buyout mania had peaked.

Two weeks ago, Carlyle teamed with two private-equity firms to buy Home Depot's supply arm for $10.3 billion. Last week, Carlyle and Onex of Canada bought Allison Transmission, a highly profitable unit of General Motors, for $5.6 billion. In the past several days, Carlyle offered about $20 billion in cash and assumption of debt for Virgin Media, the British cable TV firm whose largest shareholder is Richard Branson.

"Carlyle is one of several major private-equity firms that are on a roll right now, doing a deal a minute," said Peter Fitzgerald, chairman of Chain Bridge Bancorp in McLean and a former U.S. senator from Illinois. "Carlyle, along with Madison Dearborn, Blackstone, Cerberus and other big private-equity firms . . . may be trying to close deals before interest rates rise, capital gets more expensive and banks and other lenders tighten their conditions."

Manor Care, which traces its roots to a single nursing home in Wheaton 48 years ago, has grown into one of the largest providers of long-term care and services in the country, with nearly 60,000 employees in more than 500 facilities under the Heartland, ManorCare Health Services and Arden Courts brands.

"The transaction affords a significant cash premium to our shareholders while allowing the company to continue its strategic direction and commitment to quality care," said Paul A. Ormond, Manor Care chief executive, in a statement. "Carlyle appreciates the success we have achieved as a company and the role that our management and employees have played in the growth of this organization and its unique capabilities."

Karen Bechtel, who heads Carlyle's health-care team, said Manor Care "is positioned for continued growth and success."

The acquisition is scheduled to close in the fourth quarter.

Steven R. Howard, chairman of the investment management practice of Thacher Proffitt & Wood, a New York law firm specializing in private equity, said the deal makes sense because Manor Care needs Carlyle's access to capital.

"The projected profitability for this sector increases in direct proportion to the millions of Americans who are going to join the ranks of the retired," he said. "It's a good time to sell."

Several analysts said the $67 price was reasonable, given that the nursing-home industry has been financially stable and enjoys reliable reimbursement rates from the government and insurance companies. Another plus is the fact that the company owns the vast majority of the real estate under its facilities.

"This company owns 98 percent of the real estate of its portfolio, as opposed to leasing it," said Frank G. Morgan, an analyst with Jefferies, which has a "hold" on the stock.

Carlyle probably intends "to refinance the company and use the real estate's current market value to pay for the transaction," he said. "And over time, you continue to grow the cash flow of the company."

The enterprise that became Manor Care had been dominated by the Bainum family since Bainum Sr., a former plumber, built his first nursing home. By 1997, Manor Care -- then based in Gaithersburg -- was the 19th-largest publicly traded company in the Washington area, with revenue of $1.53 billion and profit of $136.9 million.

Manor Care was also once one of the nation's largest hotel franchisers, licensing such brands as Comfort Inn, Quality Inn, Clarion Inn, Econo Lodge, Sleep Inn, Rodeway Inn and Friendship Inn through its Choice Hotels International subsidiary, which it spun off in 1996. It later sold its 50 percent stake in Vitalink Pharmacy Services, which provides medications for nursing homes and other institutional buyers.

The company was headed for several years by Stewart Bainum Jr., a former Maryland state legislator who considered running for the state's Democratic gubernatorial nomination in 1994. He was chairman and chief executive of Manor Care from 1987 until 1998. Bainum is now chairman of Choice Hotels International, based in Silver Spring.

Staff researcher Richard Drezen contributed to this report.