Largest Deal Of The Year Extended

October 17, 2008

October 17, 2008
Yesterday, after watching shares of Sunrise Senior Living plunge by nearly 30% before recovering half that loss, we said that the next worse thing to happen to the company, after the new accounting restatement, would be for Health Care REIT to terminate its planned acquisition of Arcapita's 90% interest in 29 communities managed by Sunrise, a deal where Sunrise would receive upwards of $40 million in cash. Health Care REIT announced that its agreement with Arcapita has been amended to extend the due diligence deadline from October 17 (today) to October 31 (Halloween). Have you ever noticed that October is the worst month of the year for financial markets?

So what does this mean? The best case scenario is that Health Care REIT really does need more time for due diligence. That seems unlikely, however, since they had to have reams of information to go over before they were the successful bidder seven weeks ago. An additional seven weeks should have been long enough, and perhaps too long, since a lot has happened in those seven weeks. Our best guess is that they are reviewing the terms of the original agreement and will try to strike a new deal, with a lower price. If it is reasonable, Arcapita should count its blessings and take it, because we are confident that the back-up bidders seven weeks ago would no longer pay their original prices they offered. We are still troubled by the fact that when the deal was first announced, the portfolio occupancy number used was as of June 30, and not August 31, which was presumably available. With all the price discounting going on to fill beds around the country, we can only guess that cash flow growth for this portfolio has been minimal, at best, since the deal was announced, and may have actually deteriorated somewhat (just speculation). The bottom line is that whenever a sophisticated buyer needs an extension, and financing is already in place, you can bet that something is up, and it's not the price.


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