The Motley Fool, 6/16/97: The Lunchtime News

FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

Eldercare Heats Up

Consolidation in the long-term care business continues apace this morning as GENESIS HEALTH VENTURES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GHV)") else Response.Write("(NYSE: GHV)") end if %> commenced a tender offer for all of the outstanding shares of MULTICARE COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MUL)") else Response.Write("(NYSE: MUL)") end if %>. A separate company led by Genesis called Genesis ElderCare Acquisition Corp. (GEAC) is offering $28 per share in cash for Multicare's 155 nursing homes and rehabilitation service centers. GEAC is a partnership among Genesis and private investment firms Cypress Group, LLC and Texas Pacific Group, two investment partnerships that control more than $3.5 billion. This deal values Multicare at $1.45 billion, including $417 million in long-term debt and convertible securities currently outstanding.

Although GEAC will actually own the nursing homes acquired from Multicare, Genesis makes out quite well under the terms of the deal. The company will invest only $300 million in cash in exchange for 42% of GEAC's assets. The remainder of the financing necessary for the deal will come from the two limited partnerships, additional bank debt, and high-yield "take-out" financing. In return for this investment, Genesis will manage the GEAC nursing homes under its brand for a fixed fee and will also manage another separate partnership that will consist of the institutional pharmacies of both nursing home groups. Additionally, Genesis will receive Multicare's rehabilitation therapy unit, a business generating $20 million on an annualized basis, for no additional cost.

The deal is the second major acquisition in the last month where private funds have helped to slice and dice the acquisition of a property focusing on elder care. On May 30, INTEGRATED LIVING COMMUNITIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ILCC)") else Response.Write("(Nasdaq: ILCC)") end if %> was acquired by a private limited partnership that is an affiliate of Goldman Sachs. In early May, LIVING CENTERS OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCA)") else Response.Write("(NYSE: LCA)") end if %>, GRANCARE, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GC)") else Response.Write("(NYSE: GC)") end if %>, and Apollo Management, L. P. announced a recapitalization and merger transaction valued at approximately $1.8 billion that created the second-largest long-term care provider in the country, with tentacles in the institutional pharmaceutical, rehabilitation, and assisted living businesses. The acceleration of deals in this arena involving private partnerships suggests that based on conventional business metrics like the actual cash flow the business generates, these properties are woefully undervalued and might be worth an investor's attention.

UPS

DOWNS

Point of sale systems company CHECKMATE ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMEL)") else Response.Write("(Nasdaq: CMEL)") end if %> tumbled $2 to $8 after the company said it doesn't know if it will break even this quarter, a far cry from the $0.23 per share mean analysts' estimate.

The Dow Jones organization giveth and taketh away. HIGHWAYMASTER COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HWYM)") else Response.Write("(Nasdaq: HWYM)") end if %> dropped $1 1/2 to $13 3/4 as investors learned the latter from this weekend's Barron's "Sizing Up Small Caps," which pointed out that this wireless freight tracking company is valued at $390 million, has no earnings, and "faces stiff competition."

RAYMOND CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYM)") else Response.Write("(Nasdaq: RAYM)") end if %> lost $2 17/32 to $32 19/32 after the maker of industrial equipment agreed to be acquired by BT Industries of Sweden for $33 per share in cash. Raymond has surged from the level at which it was trading around the beginning of the year, at about $17 1/2.

Italian athletic shoes and apparel company FILA HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> tripped $5 1/4 to $32 1/8 after the company announced on Friday that it expects revenues for the second quarter to come in below expectations and that it will see EPS of $0.53 to $0.60, below the mean First Call estimate of $0.88. The company blamed a weak U.S. market.

BRITISH STEEL PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BST)") else Response.Write("(NYSE: BST)") end if %> lost $1 5/8 to $26 3/8 after reporting year-end earnings of $2.49 per U.S. share, in line or better than analyst expectations. That's down 60% from last year, though the company says it's cautiously optimistic about the coming year.

CONFERENCE CALLS

MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>
(402) 220-1003 -- replay
After 8:00 p.m. EDT

FOOL PORTFOLIO STOCKS

FOOL PORTFOLIO                  BORING PORTFOLIO

ATCT down $1/16 at $5 1/2       ATLS down $1 1/4 at $33 3/4
AOL up $1 1/4 at $59 3/4        BGP unch. at $23
CHV up $1 at $77                CSL down $5/8 at $33 1/4
COMS down $1/8 at $47 7/16      CSCO up $1/2 at $67 3/16
DJT up $1/4 at $11 7/8          GNT down $1/8 at $35 1/8
GM up $1/2 at $57 3/4           ORCL down $3/8 at $51 5/8
IOM down $1/8 at $20 1/2        OXHP down $1 at $69 7/8
KLAC unch. at $46 1/4           PMSI unch. at $11 5/8
LU down $1 at $68               TDW up $5/8 at $41 1/4
MMM down $1 1/4 at $97 1/2
T up $1/4 at $38

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Randy Befumo (TMF Templr), a Fool
Fool Plate Special

Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

Brian Bauer (TMF Hoops), and yet another Fool
Editing