One group of investors essentially took control of Genesis HealthCare, another group is trying to do the same thing with Capital Senior Living, and a third group wants to buy Diversicare Healthcare Services, and just may get its way. All three are different, but only one involves giving existing investors a major premium, which is one big reason why it may go through.
An entity called MCS Plan, along with its controlling owner Ephram Lahasky, has offered to buy Diversicare for $10.10 per share. The offer letter came from DAC Acquisition LLC, which is also managed by Mr. Lahasky. There are the obvious contingencies and due diligence that needs to be completed, but this is quite an attractive offer to current shareholders. Before the offer was made, the share price closed at $2.84. The next day it soared by more than 170% and closed at $7.70 per share on volume of 157,200 shares. Typical daily volume is more like 1,000 to 2,000 shares, with some days of no activity.
The takeover premium of 255% is unusually large, but Diversicare at one time traded in the teens, and it has been performing much better these days. It has divested some money-losing properties and now is posting a GAAP profit, which came to $2.5 million in the second quarter. Now, this does include provider relief funds of $8.5 million which was recognized in the second quarter, as well as higher Medicaid payments in some states. Afterall, how else would you make money when you are operating at 66.5% occupancy?
Our guess is that Mr. Lahasky sees opportunity from a post-COVID rebound in census (whenever “post” comes to be). Diversicare’s second largest state, Texas, has an occupancy rate of just 57.8% based on available beds, and their home state of Tennessee is just 58.0%. There is a long road ahead, and we are not sure how long the relief funds will continue, and what will happen when they start to go away. The company has 7,250 licensed nursing beds scattered across eight states, so it is a decent platform, if that is what Lahasky wants.
The premium offered above the recent price is astounding, and the shares still trade more than 20% below it, suggesting there are many shareholders who do not believe the deal will go through at the offered price. The current market cap is just over $50 million, compared with Capital Senior Living’s market cap of $75 million, with a proxy fight underway there. Diversicare management has hired Brentwood Capital Advisors to assist it in evaluating the current offer, with no timetable on a response. Stay tuned.
