ATLANTA, June 25, 2012 /PRNewswire/ -- Covington
Investments, LLC ("Covington") today issued the following open
letter to the shareholders of Advocat, Inc. (NASDAQ: AVCA), (the
"Company") regarding the announced acquisition of Sun Healthcare
Group, Inc. (NASDAQ: SUNH) ("Sun Healthcare") by Genesis
HealthCare, LLC ("Genesis"):
Dear Fellow Shareholder:
On June 20, 2012, Sun Healthcare
announced that it had agreed to be acquired by Genesis for
$8.50 per share in cash. We
wanted to bring this to the attention of Advocat shareholders as it
is a further illustration that the Board of Directors of Advocat is
not acting in the best interests of all shareholders by refusing to
enter into discussions with Covington regarding its proposal to
acquire the Company. There are significant similarities
between the two proposed transactions.
Sun Healthcare is a publically traded skilled nursing facility
company with over $1.9 billion in
revenues and a market value (prior to the announcement) of
approximately $157 million.
Genesis is a privately owned skilled nursing care provider.
The implied transaction multiples for the Genesis-Sun Healthcare
deal compared with Covington's proposal to Advocat are set out in
the table below. In all respects, Covington's offer values
Advocat at substantially higher multiples than the Genesis-Sun
Healthcare multiples.
|
Transaction Multiple[1]
|
Covington-Advocat
|
Genesis-Sun Healthcare
|
|
Premium
to closing stock price on day prior to announcement
|
95.9%
|
43.1%
|
|
Premium
to prior 30 day average closing stock price
|
71.3%
|
55.6%
|
|
Enterprise Value to L12M Revenues
|
0.2 x
|
0.1 x
|
|
Enterprise Value to L12M EBITDA
|
6.0
x
|
3.0 x
|
|
Adjusted Enterprise Value to L12M
EBITDAR
|
7.3 x
|
6.1 x
|
[1] L12M refers to latest twelve months as of March 31, 2012. Adjusted enterprise value =
market value of equity + preferred stock + debt (excluding debt
associated with West Virginia (for
Advocat)) + lease expense capitalized using a 12.5% cap rate –
cash.
Sun Healthcare's Board of Directors unanimously approved the
transaction with Genesis. In contrast, Advocat's Board of
Directors refuses to even enter into discussions regarding a
proposal that has much higher valuation multiples and despite the
fact that Advocat is a much smaller company with significantly less
trading liquidity.
Please join us in expressing your views to Advocat in light of
the Genesis – Sun Healthcare announcement. We encourage you
to call or write the directors and management urging them to engage
in meaningful discussions with Covington regarding its proposal to
acquire the Company. As stated previously, we remain
interested in a mutually agreeable and negotiated transaction.
Sincerely,
/SIG/
John E. McMullan
President
Covington Investments, LLC
About Covington Investments, LLC
Covington's affiliates own and operate continuing care
retirement communities offering skilled nursing, assisted living,
independent living and home health services in Florida, Ohio, and Tennessee. The Companies' combined campuses
comprise over 1,000 skilled nursing and assisted living beds as
well as nearly 600 independent living units.
SOURCE Covington Investments, LLC
