Carlyle encounters obstacles in $6.3bn Manor Care buyout

Critics of Carlyle’s $6.3 billion buyout of US nursing home chain Manor Care have convinced several state legislatures to review the deal before granting the private equity firm operating licenses for dozens of facilities.

The Carlyle Group’s $6.3 billion (€4.3 billion) takeover of US nursing home chain Manor Care appears increasingly embattled, as the Service Employees International Union has convinced at least one state legislature to delay granting the private equity firm necessary operating licenses. Several other states have held or will hold hearings on the deal before deciding whether to grant the necessary licenses.

Carlyle declined to comment, while Manor Care did not immediately return a request for comment.

The buyout firm agreed to take the nursing home chain private in July for $67 per share. The deal was approved by shareholders as well as the Federal Trade Commission, but amid widespread scrutiny, the deal’s closing date was pushed back from 7 November to this Friday.

Last week West Virginia imposed a stay on the transfer of operating licenses for the seven facilities located in the state at the request of the Service Employees International Union, while the West Virginia Health Care Authority prepares for a 14 December hearing on the deal.

Illinois held a hearing on the issue on Monday, as did Wisconsin. Pennsylvania has also held a hearing on the deal, and Maryland and Florida plan to follow suit.

On a federal level, Senators Hillary Clinton, a Democrat representing New York and Presidential candidate, and Charles Grassley, a Republican from Iowa, separately asked the Government Accountability Office to review the deal in October, and in November two congressional committees held hearings examining the effects of private equity ownership on quality of nursing care.

Congressional interest in the matter stemmed from a September New York Times article which alleged substandard patient care was prevalent at private equity-owned US nursing home chains, including those owned by Warburg Pincus. The Times article did not include data on Manor Care nursing homes.

But at least one House hearing failed to find particular fault with private equity.

“We’ve been looking incorrectly, I think, at private equity today,” said House Ways and Means Health subcommittee chairman Pete Stark. “The question is: Are we to have some minimum standards, as we do with acute care hospitals, for nursing homes to qualify for Medicare?”

The SEIU has vocally opposed several Carlyle deals and has staged protests of the Manor Care buyout and others at Carlyle’s Washington DC headquarters. The SEIU has said it fears that labor cuts following the deal’s completion could hurt the quality of care at Manor Care, and is concerned that “the Carlyle Group’s focus on its own profits may be coming at a high cost to seniors, taxpayers, and workers”, according to a statement.

SEIU: Protesting Carlyle

Yesterday the union also announced plans to join with several Australian unions to oppose Carlyle’s buyout of Australian rental company Coates Hire, as part of a “new global effort to hold the Carlyle Group accountable for the treatment of workers at its portfolio companies”, according to a statement.

The effort is not lost on Carlyle; at an American Enterprise Institute conference on private equity yesterday, Rubenstein said in a keynote speech that he is “protested everywhere I go”.

Though the SEIU did not make an appearance at the conference, as it has at previous buyout conferences, Rubenstein sparred with a man in the audience who identified himself as an “angry investor”. The man accused Carlyle of paying “almost no premium” over Manor Care’s stock price prior to the deal’s announcement.

Manor Care announced that it would review strategic alternatives on 11 April. On 10 April its stock closed at $55.75. Carlyle’s offer represented a 20 percent premium over this price.

“Ninety-nine percent of the people who voted on [the bid] approved it,” a visibly irritated Rubenstein responded. “Nobody put a gun to their heads.”

The man replied that he felt shareholders “weren't paying attention”.

“Attention deficit disorder is not something I deal with,” Rubenstein said. “I can't change the whole system of the way we buy companies.