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Care Capital considered few other options before Sabra deal


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Care Capital considered few other options before Sabra deal

Care Capital Properties Inc. did not engage with any other potential suitors after Sabra Health Care REIT Inc. broached the possibility of a combination of the two healthcare real estate investment trusts in July 2016.

According to an account of the companies' negotiations included in a registration statement describing the all-stock deal that the REITs eventually reached, the REITs negotiated throughout the third quarter. Discussions were put on hold between September 2016 and January 2017, after Care Capital's board directed management to suspend talks and focus on operational issues arising from the company's 2015 spinoff from Ventas Inc. They began again when Sabra Chairman, President and CEO Rick Matros renewed contact with Care Capital executives days into the new year.

At an April 17 meeting with advisers from Bank of America Merrill Lynch and the law firm Sidley Austin LLP, Care Capital executives discussed other potential transactions, including one involving an unnamed industry participant. Still, the participants concluded that "it was unlikely that other potential companies in the industry (including such other industry participant) would be interested in acquiring CCP at this time, and that it was unlikely private equity firms would be interested in acquiring CCP at this time," the filing says, referring to Care Capital by its ticker symbol.

Regarding the other industry participant in particular, one Care Capital board member "reported on a conversation he had several months ago with a director of such company, during which such director indicated to such member that if CCP was ever interested in a potential transaction, CCP should contact that industry participant."

The assembled executives and advisers decided not to do so, reasoning that the other party was more focused on operations than acquisitions.

The advisers returned to the topic of other possible strategic options at an April 23 meeting, but discussion of the topic ended after the Care Capital board raised "certain business considerations that could result in CCP stockholders viewing such a potential combination as less attractive than a combination with Sabra."

Around the same time, Sabra and Care Capital wrangled over whether the deal represented a merger of equals or an acquisition by Sabra. The 6.5% premium that Sabra was offering for Care Capital's shares as of mid-April "may be generally appropriate for a merger of equals transaction," but an acquisition by Sabra — with less Care Capital representation on the combined board — would require a richer premium, Care Capital argued.

According to the companies' narrative in the filing, Care Capital persuaded Sabra to drop a so-called "force the vote" clause, which would have required a vote on the combination by shareholders of both companies, regardless of whether a higher offer for Care Capital emerged.

In the end, the companies agreed on an exchange ratio of 1.123 shares of Sabra common stock for every share of Care Capital common stock, representing a 15% premium to Care Capital's stock price based on the two companies' valuations at the close April 21.

The premium shrank in the weeks after the deal was announced as both companies' share prices dropped — Sabra's more steeply. Based on the companies' share prices at the close of trading June 12, Sabra was planning to exchange roughly $26.11 per share for Care Capital shares that traded at $25.80 on the public market. The figure represented a roughly 1.2% premium to Care Capital's market price.

Care Capital executives declined to comment on the deal.