Integrated Health Services Inc., an Owings Mills-based nursing home chain, said yesterday it had agreed to buy a group of nursing homes, drug companies and home health services that essentially doubles its size.
Integrated said it has signed a binding purchase agreement to acquire the stock of Central Park Lodges Inc., a U.S. subsidiary of Trizec Corp. Ltd., the embattled Canadian real estate conglomerate that is looking to restructure its debt. Under the terms of the agreement, Integrated will take over all of Central Park's operations, including 39 nursing home and retirement facilities and 5,050 beds.
After the acquisition, IHS will operate 106 U.S. facilities with 13,781 beds and will employ more than 12,500 workers.
The transaction, worth at least $182 million in cash and debt assumption, paves the way for Integrated to introduce its specialty service into key markets in Florida, Texas and Pennsylvania. In addition, analysts said, the purchase opens the way for the company to bid on statewide managed care contracts in Florida.
Integrated stock jumped $1.125, to close at $27.75, at the news in New York Stock Exchange trading yesterday.
Integrated has built a market niche in the long-term-care industry by converting parts of its facilities into subacute medical centers or mini-hospitals. These serve as a transition between hospital and home for patients who are on the mend, and cost one-third to 60 percent less than a hospital bed.
"The prime locations and high quality of Central Park Lodges' TC facilities make this deal an important part of our strategy to target our services on a state-by-state basis and to be the dominant subacute care provider in a given state," said Robert N. Elkins, Integrated chairman and chief executive officer.
"It should be a real opportunity for them, because basically those facilities from Central Park Lodges are not in the subacute care business and they [Integrated] plan to do what they have done so successfully in the past -- that is, take already profitable nursing homes and convert a good proportion of them to subacute, turning them into more profitable businesses," said Bernard H. Dorshow, director of research for the Baltimore-based Chapman Co.
Central Park reported revenues of $137 million for 1992. Integrated had $195 million in revenues in 1992 and $192 million for the first three quarters this year. The resulting company will be the fifth-largest publicly traded long-term-care company in the United States in terms of revenues. Integrated was founded in 1987 and went public at $14 a share in 1991.
Under the terms of the agreement, Integrated will pay Trizec $86 million, repay about $50 million in debt Central Park owes it parent and assume an additional $46 million of indebtedness. In addition, Integrated will give Trizec warrants to acquire 100,000 shares of Integrated common stock at the current market price.
The agreement has the approval of the boards of both companies, and will be reflected in 1994 earnings.
Integrated said it has secured a promise from Citibank to increase its credit line to $200 million for the initial financing, but the company will refinance the debt in the first quarter of 1994. It is considering a variety of methods, including stock and subordinated debt. Integrated's total debt will be $335 million after the purchase.
The purchase price of the nursing homes alone comes to $33,000 a bed, higher than the typical Medicaid home bed but attractive because of the avenues it opens for Integrated to improve profits and expand to new markets, analysts said.
"I think it is going to help them build scale in three states. In particular, the Florida operation they are acquiring looks every attractive," said Peter Emch, health care analyst with Robert W. Baird & Co. of Milwaukee. "The facilities are well located and in good shape . . . and I think it strategically accomplishes the objective of being able to contract on a state basis."
The transaction is expected to be complete by the end of the year. It includes a whole new business for Integrated -- home health services -- that the company says will make it more competitive.
"This is important to our long-term strategy of providing full-service, one-stop shopping to our patients" and other clients, said Dr. Elkins.
Dr. Elkins said the company's board seven months ago adopted an acquisition budget and a strategy to go into or expand in key states such as Florida from a managed care perspective, essentially anticipating which services could be packaged and offered to an insurance company for a negotiated lump sum fee.
The newly acquired home health business is small and the pharmacy business is moderate, but they will be expanded to serve all Integrated facilities, he said.
"What we want to do is control the patient from the day the patient leaves the hospital for the next six months to a year," Dr. Elkins said.
The industry and Integrated are headed toward a flat per-person fee structure, he said.
In the next three years, Integrated is expecting to negotiate for capitated contracts that would make it responsible for the cost of hospitalization should a patient be returned to a higher-cost facility during the time he or she is in the care of Integrated.