Vitalink to buy GranCare's pharmacy division Deal will give chain 54 outlets in U.S. nursing homes

September 05, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

Vitalink Pharmacy Services Inc., the institutional pharmacy unit of Manor Care Inc., yesterday announced it was buying the pharmacy division of GranCare Inc. of Atlanta for stock and assumed debt that Vitalink valued at $370 million.

GranCare will spin off its nursing home operation before the deal closes, which is expected to be by the end of the year. Vitalink, which is 82 percent owned by Manor Care of Silver Spring, will then issue 11.6 million shares for GranCare's stock and assume $107 million in debt.

The deal will make Naperville, Ill.-based Vitalink the second largest publicly traded institutional pharmacy company in the country, filling about 10 percent of long-term-care prescriptions and pulling in annual revenues of about $400 million. Vitalink will have 54 pharmacies in 29 states, serving 166,000 nursing home beds.

Steward Bainum, chairman and CEO of Manor Care, will become chairman of the new company. Gene Burleson, chairman and CEO of GranCare, will be CEO.

Institutional pharmacies, which fill prescriptions for residents of nursing homes and other facilities, have gone through a rapid period of consolidation, including yesterday's announcement that Omnicare Inc., a publicly traded institutional pharmacy company in Cincinnati, would acquire the long-term-care pharmacy business of Revco.

Several of the consolidations involved Baltimore-area firms.

NeighborCare Pharmacies of Baltimore, with institutional and retail pharmacies, was sold in June to Genesis Health Ventures of Kennett Square, Pa., which also operates a nursing home chain. Genesis paid about $47.3 million in cash and $10 million in stock, and assumed $18 million of the privately owned firm's bank debt. NeighborCare was merged into the ASCO division of Genesis.

And Baltimore-based Capstone Pharmacy Services, rapidly growing through acquisition, doubled its size in July when it spent $125 million in cash and $25 million in stock for Symphony Pharmacy Services, the long-term-care pharmacy division of Integrated Health Services of Owings Mills.

John F. Hindelong, an analyst for Donaldson, Lufkin & Jenrette in New York who follows both Manor Care and GranCare, said "The institutional pharmacy business is an attractive one," stimulating some companies to make acquisitions and others to sell institutional pharmacy divisions because they can bring a good price.

"GranCare is attempting to create shareholder value by selling the most salable part of its business," he said.

He said the purchase made sense for Vitalink, creating "some economies of scale. If you call Eli Lilly and tell them you're buying for tens of thousands of nursing home beds, you've got their attention." However, he said "in the scheme of things, it's not a major issue for Manor Care, because it's such a large company."

Stock prices for all three companies increased yesterday. Vitalink closed at $21.375 a share, up $1.625. Manor Care closed at $34.75, up 25 cents. GranCare closed at $19.825, up $1.125.

Pub Date: 9/05/96

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