Over the weekend, Formation Capital and JER Partners increased their offer for Genesis HealthCare by $1.20 per share to $69.35 per share, topping rival bidder Fillmore Capital by 10 cents per share. Formation also kept in its timing premium, with the price increasing by $0.0171 per share per day if it does not close by July 31 ($0.51 per month), and then $0.019 per share per day after August 31 ($0.57 per month). These timing premiums are slight increases from Formation’s previous offers. But the nail that may be in the coffin of Fillmore is the revised break-up fee, which has increased from $15 million to $40 million, or the equivalent of about $2.00 per share. To me, this is a statement from the board that enough is enough and the bidding is over. The board may also have had an indication that Fillmore would not go higher, but we don’t know that. 

Because of the timing differences of the two bidders’ ability to close (60 days for Formation and 90 to 120 days for Fillmore), my guess is that Fillmore would have to offer at least $70.25 per share to make the offers comparable based on the time value of money, but the true cost to them would be over $72.00 per share after factoring in the break-up fee. Putting egos aside, and this bidding war may have become an issue of egos, I do not see Fillmore wanting to have a cost of $72.00 per share or higher, unless they really need the Genesis assets to enhance their Beverly Enterprises portfolio. The special committee of the Genesis board of directors unanimously recommended this new offer, which was approved by the full board, and shareholders of record as of March 5 will be given the chance to vote on May 30. Maybe it’s time for Fillmore take a look at Manor Care, where we hear up to a dozen financial buyers are doing their management interviews.