Two of the region's major corporate enterprises -- Manor Care Inc., a national health care firm, and Quality Inns International Inc., the nation's seventh largest hotel and motel chain -- have agreed in principle to merge.
Stewart Bainum, chairman of both Silver Spring-based firms, said yesterday the combination should add "more financial muscle" to Quality Inns' plans for growth.
"Both companies are actively seeking growth potential and acquisitions," said James H. Rempe, executive vice president of Quality Inns. The merger "had been considered in the past. It seemed particularly germane since both companies are successful now."
Other explanations for the move are expected to be spelled out in formal tender offer materials next week.
"It's a good investment in the opinion of our board," said Manor Care President J. Calvin Kaylor.
The terms of the combination, in the works for five or six weeks, provide for Quality Inns to be merged into a wholly owned subsidiary of Manor Care. Under the plan, Quality Inns will maintain its identification, trademark and operations.
Each outstanding share of Quality Inns common stock is to be exchanged for $14.25 of Manor Care common stock. But not more than about 1.02 shares or less than about 0.71 shares of Manor Care stock will be exchanged for each Quality Inns share.
In addition, Manor Care, through a subsidiary that hasn't yet been named, will make a cash tender offer for 1.15 million shares of Quality Inns common stock at $14.50 a share net. That is equivalent to about 45 percent of the outstanding shares.
If less than 45 percent of Quality Inn's outstanding stock is purchased in the tender offer, Quality Inns stockholders will have the opportunity to receive cash in the merger at the same $14.50 a share.
The companies expect to enter into a definitive merger agreement later this week, with stockholder meetings of both companies scheduled for some time in September. The tender offer is scheduled to be effective Friday through Aug. 22.
Bainum and members of his family own about 995,000 shares of Manor Care common shares, and about 852,000 share of Quality Inns common stock, or 33 percent of outstanding shares.
Manor Care owns and operates 23 nursing centers in nine states with 3,478 beds, an acute hospital with 120 beds in Dallas and two alcoholic rehabilitation centers in Florida.
Quality Inns operates and provides franchise services to more than 340 hotel properties in the U.S., Canada, Mexico and Europe. The hotel chain was hard hit during the 1974 and 1975 recession but has bounced back by tightening its operating budget and selling losing properties. It plans to expand to 500 hotels by next year.
Manor Care also posted annual earnings yesterday, showing profits in the year ended May 31 of $6.5 million ($2.70 a share) compared with $2.5 million (90 cents). Included in the recent year's results was a one-time gain of $3.07 million from selling Hillhaven Corp. stock. Revenues rose to $53.4 million from $47.3 million.
Net income for the fourth quarter was $970,000 (40 cents), up from $626,000 (22 cents). Revenues for the quarter were $14.1 million compared with $12.7 million.