Wednesday, November 30, 2005

Beverly Sale Bubbles

Turkeys to chestnuts, or whose goose is cooked this time?
11/28/05 SeniorCare Investor)
By Steve Monroe

Even though Thanksgiving is over, there may still be some turkeys roasting in Arkansas. With the "new" deal for Beverly Enterprises, at just $12.50 per share, the Beverly Yahoo message board continues to have some chatters believing that a bidder will top the current price. Although anything is possible, the odds are less than 10% of anyone, including the most likely candidate, Formation Capital, entering the fray. So our guess is that the deal will move forward in its current form, but that doesn't mean there won't be some surprises.

A case in point is a recent article we came across, from the Southwest Times Record, that quoted the CEO of "new" buyer Fillmore Strategic Investors as saying that "politics in Arkansas is a challenge...Can we operate the company effectively with politicians parked on our doorstep?" Incredibly, he was further quoted in the article as saying, "Will Arkansas allow a long-term health care company to operate in the state without undue harassment?" While he certainly is not trying to make friends in the state, he more obviously is setting the stage for reasons to move the headquarters, something that "previous" buyer North American Senior Care (NASC) wouldn't admit, but that former bidder Formation was very up front about.

Just as incredibly, Beverly CEO Bill Floyd was quoted in the same article as stating that when the new deal was announced the topic of where the company would be headquartered never came up with the buyer. Come again? That was supposedly the main virtue of selling the company to NASC, keeping the company intact and in Arkansas, which was why all the politicians in Arkansas, but one, rallied around NASC and not Formation, which was rather clear about its intent. Does anyone really believe that when Beverly's board skewered shareholders with the lower bid they did not ask for a consolation prize of a commitment to keep the company in Fort Smith? Does anyone really believe it ever made economic sense to leverage up the company without some asset sales and a potential breakup of the company? So, how will those local politicians respond, the ones that have been greased with political contributions over the years, when they figure out that big Beverly may finally be lost? By Christmas, there just may be some chestnuts roasting.

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