After the market close yesterday, Sunrise Senior Living issued a press release with the now-standard language that its board of directors had decided to “explore strategic alternatives intended to enhance shareholder value,” which means they are looking into a sale of the company, or at least part of it.  They have hired Citigroup Global Markets to act as its financial advisor.  It has been rumored for several months that this was the path the company would go down, well before Millennium Partners, LP, a 2.5% owner of Sunrise, sent a letter to the board asking it to either sell the company or change management.  Letters such as these usually have little impact anyway.  But we heard earlier this year that the company had been in serious discussions with two private equity firms, and that the formal SEC investigation put an end to those talks. 

The timing of this announcement is curious because Sunrise has still not filed financial statements with the SEC for six quarters.  In yesterday’s announcement, the company also disclosed that the losses from the restatement of prior years’ financial statements would be greater than their last estimate, which is also odd because everyone expected that they had most of the numbers done by the beginning of the summer.  Perhaps it was wishful thinking.  Nevertheless, the historical cash flow will not change, and we have thought the accounting restatement was a non-event anyway as long as the higher “profits” from the restatement for 2006 through 2008 are separated out.  We have stated for a while that Sunrise would be much better off as a private company, developing and operating without having to spend so much time on presentation and concentrating instead on cash flow for its shareholders and its landlords. 

It is unclear at this point whether Paul Klaassen, the CEO and founder, is completely on board with this decision or if it is being forced on him.  He and his wife have been the heart and soul of the company for more than 25 years, and there have been rumors that the company could be split up geographically, with an outside investor buying the U.S. operations and the Klaassens taking the growing international business.  Whatever happens, current financial statements have to be disclosed to current shareholders before any deal can be voted on, so we assume the board is “teeing up” the company over the next several months, providing prospective buyers with confidential financial information that no one else can see, and if a deal is negotiated, they will wait for that announcement until the restated and current financial statements are filed with the SEC.  After dropping by $1.19 a share yesterday before the announcement, Sunrise shares jumped by 10% in early trading today as a result of the announcment, only to lose half of that later in the morning.  What this seems to say is that shareholders are excited about the prospect of a sale, but are confused as to what the company really may be worth.  With little information for 18 months, we don’t blame them.