"With Ventas' 10% purchase price increase, the final price represents a premium of approximately 57% over the volume weighted average trading price of the REIT's units on the Toronto Stock Exchange for the 20-day period immediately preceding the announcement of the original transaction in January," says Michael Warren, chairman of Sunrise, in a statement. "The Sunrise REIT Special Committee and board of trustees strongly recommend that unitholders vote for the proposed Ventas transaction at the upcoming special meeting." The transaction is expected to close on April 26, after the mergers is approved by Sunrise's unitholders in a special meeting.
Should the latest bid fail to meet the needed approval, Debra Cafaro, chairman, president and CEO of Ventas says, "It is important to underscore, however, that C$16.50 is Ventas' 'best and final' price; if we do not complete this transaction at this price, we will focus our attention on the other attractive acquisition opportunities in our pipeline."
Some analysts have opined the hike will help get the sale completed, especially with a $250-million lawsuit lurking over Sunrise. The civil action was filed just days after the Court of Appeal for Ontario seconded an earlier court ruling that the Canadian REIT acted improperly in pursuing a counter-offer from Health Care Property Investors Inc. A California-based REIT, HCPI had agreed to pay C$3 more than the initial Ventas price, but was rebuffed legally at every turn and remanded from making any Sunrise bids for at least 18 months. Prior to HCPI's intervention, Ventas had been on course to complete the purchase after winning an auction for Sunrise held in January.
Ross Nussbaum, an analyst at Bank of America's Equity Research team, estimates the implied cap rate would be lowered from 6.2% to 5.7%, but concluded the acquisition still makes sense, calling it "a strategic positive" for Ventas that can speed growth and diversify cash flow. While the latest offer is only half the premium tendered by HCPI, the analyst notes that Sunrise shareholders have exposure to financial penalties should the deal crater, both from the civil action and a break-up fee approaching $50 million.
Listed on the New York Stock Exchange, Ventas opened at $41.52 per share Friday morning. There could be some near-term volatility, advises Nussbaum, but he says that any price depression should be viewed as "a buying opportunity." Rival HCPI seemed intent on securing the REIT's 74 properties at the higher rate, noted one source, suggesting a measure of upside. Ventas operates 455 senior living facilities encompassing nearly 50,000 beds, while HCPI has 337 senior living projects, 260 medical office buildings and more than 100 hospitals and ancillary healthcare assets.
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