Southmark Corp., the Dallas-based financial services and real estate conglomerate, said Tuesday that it wants to acquire control of troubled Care Enterprises Inc. and has agreed to buy the voting rights of a substantial block of the nursing home operator's stock.
Laguna Hills-based Care Enterprises, which has been facing stiff financial problems and managerial turmoil for the last several months, had no immediate response.
However, analysts said the Southmark proposal offers the company a strong financial partner and an opportunity to end the family feuding that has wracked its executive suite for the last 18 months.
In its announcement, Southmark said it had signed a letter of intent to acquire the voting rights of co-founder Ted D. Nelson in exchange for a $7.3-million loan. Nelson controls about 23% of the voting shares. The deal, collateralized by the shares, values his stock at an even $4 each.
In addition, Southmark revealed that it had earlier offered to buy the Care Enterprises stake owned by co-founder Dee R. Bangerter, Nelson's half-brother, for up to $3 per share. It was not immediately clear how Bangerter responded to the offer.
Southmark, which already owns 80% of National Heritage Inc., the nation's fourth-largest nursing home operator, also said it plans to "have discussions with the management of Care Enterprises to explore Southmark's intentions." Care Enterprises is about half the size of National Heritage.
Southmark officials did not disclose any intentions to acquire the remaining shares, including those of the third co-founder, Lee R. Bangerter, Dee's twin and Care Enterprises' president. The Southmark spokesman specifically said the company was not making a tender offer "at this point." Nevertheless, the spokesman said Southmark's acquisition pattern has been to acquire control of a company initially and later buy out remaining shareholders.
In trading on the American Stock Exchange, Care Enterprises' class A shares closed at $2.75, up 37.5 cents for the day, and class B shares closed at $3.50, up 67.5 cents.
Southmark's announcement, which apparently caught Care Enterprises by surprise, came just weeks before the company is due to repay a $14.2-million portion of its staggering $175-million debt load. Financing the debts, which were accumulated to launch an ambitious expansion, has been a major drain on the company and led to losses of nearly $10 million last year.
In addition to potentially offering a solution to Care Enterprises' financial problems, the introduction of Southmark management into the company could end the bickering between Nelson and the Bangerter brothers. The feud among the three millionaire brothers erupted into the open after the bankruptcy of another jointly owned venture, Knudsen Dairies, last September.
Care Enterprises is the last of what was once a sprawling empire created by the three brothers. In addition to the Knudsen operations, the empire included Foremost Dairies, a savings and loan and, earlier, a real estate investment trust. Last year, as the Knudsen operations began to sink under the weight of enormous debt, Nelson resigned from the Care Enterprises board in a dispute with the Bangerter brothers. Later, when Nelson tried to regain a director's seat, he was turned down. His efforts to trade his shares for a portion of the company's assets were also rebuffed.
A Southmark official said he believes that Nelson instigated the latest deal in an effort to use his shares to generate cash he needs to repay loans. Virtually all of the shares for which Nelson has agreed to sell the voting rights are pledged as collateral for loans he personally took out to prop up Knudsen about a year ago.