Seniors Housing Weekly Update-- Advocat Rejects Takeover Offer
May 22, 2012
Advocat Rejects Takeover Offer
On May 11, Advocat received an unsolicited offer from Covington Investments to buy the company for $8.50 per share, a nearly 100% premium to the prior day’s closing price. The news took the price as high as $7.54 per share, but with the Board’s subsequent rejection of the offer, the shares now trade below $6.00. We don’t know too many management groups who like to sell their company, especially when the sale could result in the loss of their job. The Advocat board believes the offer undervalues the company. Really? We know the skilled nursing business has seen its share of turmoil these past few years, but with an offer that is double the then market price, management and the board owe it to the other shareholders to at least sit down and talk, and not talk about how implementing their strategic initiatives is the best way to enhance value. Just how long do shareholders have to wait for these initiatives to pay off? Is it possible that in two years the share price could reach $8.50? Yes, but it could also be back down at $5.00. Whether it is today or tomorrow, $8.50 is a very generous offer.