AdCare, a provider of senior living and healthcare facility management and owner/manager of long-term care facilities and retirement communities, is allegedly lined up to receive a tender offer from the Brogdon Family LLC, who in April said it intends to make an offer to acquire a 55-75 percent stake in AdCare at $8 per share, a more than 86 percent premium to the average stock price. The Brogdon Family, controlled by Christopher F. Brogdon, the former chief acquisition officer of AdCare and a current director, currently owns 12 percent of the company.
Interesting timing, considering AdCare’s stock turned down a rocky road in mid-March when the company delayed its Q4 earnings release, citing errors in 2012 financial statements. Roughly a month later, on April 15, 2013, Adcare CFO Martin D. Brew bowed out, resigning from the company while an audit committee reported finding material weaknesses and further delayed the restatement. A day later, the Brogdon Family issued a press release outlining its intent for a tender offer of the company.
Despite the hurdles, the market cap of AdCare has risen by more than 30 percent in the past month. But what’s more perplexing is the fact that the Brogdon Family has set the offer price at $8 per share, though AdCare stock has never topped $5.78 – ever. Following the mayhem in March, it’s hard to imagine this stock making new all-time highs any time soon.
Let’s take another approach and look at another angle. Compared to its peer group (Ensign Group (ENSG), National Healthcare (NHC), and Skilled Healthcare (SKH), Adcare is trading at 25x EBITDA vs. 8.5x for the group. The $8 per share offer equates to buying AdCare for 29x EBITDA. That’s more than a marginal difference.
Briefly noting the peculiarity that the Brogdon Family announced their “intention” to submit a tender offer vs. making the actual offer, why is the Brogdon Family only interested in a stake of 55 percent – 75 percent of the shares outstanding? The huge premium, again, is a high note compared to AdCare’s peer group and considering the Q4 earnings fiasco – so if it’s such a great investment, why not the whole thing vs. dropping the tender offer to a more seemingly reasonable premium and gobbling up 100 percent for full ownership?
According to SEC documents and a little dirt digging, the Brogdon Family has yet to position its financing for the deal, and it hasn’t appeared to have retained an investment bank to help facilitate the process despite taking publicly announcing its intentions with a press release on www.cnbc.com.
AdCare today issued a press release announcing that it will not meet the extended deadline to file its Q1 report by May 20 and released preliminary data for the quarter, repeating its message that previously issued financial statements for Q1 are not reliable due to the errors in connection with the audit for FY 2012. New CFO Ronald W. Fleming has his hands full.
AdCare said it anticipates Q1 revenues in the range of $56.0 million to $59.0 million – analysts peg revenues for the quarter at $68.5 million. Net income is expected to range from $1.1 million to $2.2 million, excluding costs associated with the restatement process. The company anticipates these costs in the range of $1.2 million to $1.5 million.
Shares are down 5% at $5.50 mid-day Friday following the release … $8, hmm?
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