Extendicare to sell most of its U.S. businesses for nearly C$1 billion

TORONTO – Stock in Extendicare Inc. (TSX:EXE) plunged more than 17 per cent Friday after the company announced an agreement to sell almost all of its U.S. business in a US$870 million deal with two investment firms, Formation Capital and an affiliate of Safanad Inc.

The divested U.S. businesses generated about US$868.9 million of revenue in the first nine months of 2014 — more than half the US$1.6 billion generated by Extendicare as a whole over the same period.

The Toronto-area company said it intends to use proceeds from the sale to expand its Canadian operations, which offer long-term senior care services.

On the Toronto Stock Exchange, Extendicare shares closed down $1.41 or 17.4 per cent at $6.70 on volume of almost 1.7 million shares, six times the issue’s daily average.

At current exchange rates, the deal is worth about C$992 million — including about US$635 million of mortgage loans and other debt that will be assumed by the purchases.

Extendicare expects to receive about US$222 million of cash — about C$253 million — when the deal closes in the second quarter of 2015.D:

The company, headquartered in Markham, Ont., will retain 10 skilled nursing centres in the United States but intends to sell them. It will also retain Virtual Care Provider Inc., an indirect subsidiary that provides information technology to long-term care providers, and Laurier Indemnity Co., which insures U.S. liability risks.

As of Sept. 30, Extendicare’s U.S. business included 141 senior care centres owned and operated by the company, four centres operated under lease arrangements and 21 centres in Kentucky leased to a third-party operator.

According to Extendicare’s third-quarter financial report issued Thursday, its US. operations generated US$929.5 million (C$1.017 billion) in revenue for the nine months ended Sept. 30, while revenue from Canadian operations was C$579 million.

In the third quarter ended Sept. 30, Extendicare’s total revenue was C$536.2 million — including $199.8 million from Canadian operations. Its adjusted earnings totalled $42.5 million, including $20.2 million from the Canadian operations.

“After an extensive strategic review process, and months of negotiating and deal structuring, we are pleased to have reached an agreement to sell our U.S. business,” said Extendicare president and CEO Tim Lukenda said Friday.

“This transaction realizes our stated objective of separating our U.S. and Canadian businesses,” he said. “Importantly, this transaction generates substantial cash proceeds that accelerate our vision to further grow our Canadian business and expand our service offering.”