Genesis Health Ventures Inc. of Kennett Square, Pa., said yesterday that it will acquire Meridian Healthcare, a privately held nursing home company based in Towson, for $205 million in cash and assumed debt. The combined company, with 12,600 licensed beds concentrated in the mid-Atlantic states and Florida, would be the sixth-largest publicly traded long-term care company in the country.
The acquisition is subject to regulatory approval. It already has been approved by the boards of both companies, which would be merged. Several of Meridian's five owners, who founded the company in 1969, will assume key positions with Genesis.
The merged operations would result in a company with revenues this year of about $400 million and more than 10,000 employees. About 3,500 of these would be in Maryland, including 2,500 now employed by Meridian.
Genesis operates 55 facilities overall, and Meridian 36. Meridian is the largest nursing home operator in Maryland, and its homes will continue to use the Meridian name.
George V. Hager, Genesis vice president and chief financial officer, said the acquisition will allow the suburban Philadelphia company to offer a full range of services -- including skilled nursing, home health care, contract therapy, institutional pharmacy services and physician services -- to those who pay health care bills.
He said the company would pay Meridian's five shareholders $135 million and its lenders $70 million. Genesis' debt-to-total capitalization, 32 percent at the end of the third quarter in June, would grow to 69 percent as a result of the acquisition.
In addition to the cash and debt price, Genesis said it will lease seven geriatric facilities from Meridian that were not included in the sale. The company has an option to buy the facilities for $59 million a decade from now.
Genesis stock closed yesterday at $15.625, up 37.5 cents, itrading on the New York Stock Exchange.
Analysts said cash flow from the merged operations of two strong regional players would reduce the debt ratio quickly.
"This is an excellent fit," said Carl Sherman, health care specialist and senior vice president of Dillon Read in New York, noting that the companies have facilities in similar markets as well as similar management philosophies. Mr. Sherman said concentrated territory is "a very strong point" in the nursing home industry, and he predicted similar consolidations would be "numerous" because of the appeal to buyers of health care. In this case, he said, the result is a company with a much stronger growth potential -- he estimated it at 25 percent annually.
The two companies operate in virtually the same geographic areas -- the Baltimore-Washington corridor, the Delaware Valley and in Florida. In addition, Meridian has operations in Indiana and Genesis has operations in Massachusetts.
The deal gives Genesis, a fast-growing company founded in 1986 and that went public in 1991, access to the markets and reputation developed by the more established Meridian. Meridian, in turn, benefits from the public company's strong financial position and access to capital, which allows it to more quickly retool to take advantage of the volatile health care marketplace.
Genesis posted profits of $7.7 million on revenues of $196 million for the year ended September 1992. For the nine months ended June 30, 1993, it reported profits increased 12.1 percent, to $7.9 million, and revenues 76 percent, to $161 million, compared to the same period in 1992. The company's three-year projected growth rate is 20 percent.
Meridian Chief Financial Officer Harry G. Pappas Jr., said yesterday that access to capital was a "significant factor" in the company's decision to negotiate with Genesis when it was first approached by the company. Meridian announced in May a multiyear $87 million plan to upgrade facilities and offer new specialty services.
Meridian revenues dropped in recent years as the nursing home industry lost customers to home health care and other alternative services. Meridian had revenues of $140 million last year, Mr. Hager of Genesis said. In 1990 Meridian listed revenues of $161.9 million. Meridian officials said they are projecting sales of $180 million for 1993.
The companies also will combine other operations, including ASCO Inc., Genesis' pharmaceutical subsidiary in Columbia, and Hallmark Health, the drug company owned by Meridian.
With the merger, the company will begin setting up a system of alternative health care for the elderly
that it can market to those who pay the health care bills on a prepaid basis. Genesis currently gets 34 percent of its revenues from specialty services, including care of people who formerly were treated in more expensive hospitals. Meridian gets 16 percent of its income from such services.