Suitor to Pursue Takeover Bid for Care Enterprises : Ohio Nursing Home Operator Persists Despite Cool Reception

Ohio nursing home operator Ralph E. Hazelbaker said Wednesday that he plans to pursue his “friendly” acquisition bid for financially ailing Care Enterprises even if two of the company’s three major shareholders spurn his advances.

Hazelbaker, who owns 3% of the Tustin-based nursing home chain, said in a telephone interview that he has been discussing a possible acquisition with Care Enterprise executives for 15 months but has made no headway with two of the company’s principal officers and owners, twins Lee Roy and Dee Roy Bangerter.

Though his unsolicited proposal is more of an offer to negotiate than an actual bid, Hazelbaker said he would be willing to pay $20 million or more for the company.

“I’m very serious about the offer,” said Hazelbaker, who founded the Americare nursing operation and sold it to Care Enterprises two years ago for $25 million in cash and stock.

“I have lined up some very significant sources of income,” he said. “We’re serious enough that we have gone through a great deal of effort to get these sources ready in case they (Care executives) get serious and deal with us. Sooner or later, Care has to get serious with their problems.”

He acknowledged, however, that he has received no response to letters he has written and phone calls he has made to the Bangerters since the annual shareholders meeting in May.

A Care Enterprises spokesman said Tuesday that the company is confident it can work out its financial problems without accepting an acquisition proposal such as Hazelbaker’s. The Bangerters were said to be out of town this week and unavailable for comment.

Hazelbaker’s written offer to buy all or part of the troubled company was sent to the Bangerters on Tuesday, the same day that Care Enterprises revised a pending offer to exchange $68 million of existing bonds and notes for new bonds and notes containing less stringent financial restrictions. Among other changes, the new debt instruments would not begin paying interest to holders for 13 1/2 months.

The company proposed the bond and note swap in an effort to appease the company’s two principal banks, Wells Fargo and Citibank, which are expecting a $5-million interest payment today on $35 million in loans.

Care Enterprises previously has received written interest payment extensions from the two banks, but it has no written extension involving today’s deadline, said Mark B. Kristof, company treasurer.

The company has received verbal assurances, however, that the banks will extend the deadline to Jan. 12 to determine how bond and note holders will react to the revised exchange offer, Kristof said.

Care executives were scheduled to meet with the bankers this morning, he said.

“I can’t imagine the banks wouldn’t extend the deadline,” Kristof said. “We’re inches away from a major announcement with respect to a long-term deal with them, and we’re actively in touch with 70% to 80% of the holders of the notes and bonds.”

At least 75% of the holders must tender their securities to the company for the exchange offer to be successful.

The company’s three major shareholders are the Bangerters and their half-brother, Ted Nelson. Each owns about 22% of Care Enterprises, giving them control of the company that their mother founded 19 years ago and later sold to them.

Hazelbaker would seem to be waging an uphill acquisition effort, especially since he is involved in litigation with the company and has terminated contracts with Care Enterprises to operate five nursing homes owned by Paradigm Corp., Hazelbaker’s Ohio nursing home company.

But the possibility exists that Hazelbaker could team up with Nelson, who has publicly split with his brothers. Nelson teamed up last summer with Southmark Corp., a Dallas financial services and real estate conglomerate, in an unsuccessful effort to acquire Care Enterprises. Southmark dropped its bid in November.

Nelson’s effective stake in Care Enterprises could rival his half brothers’ if Janice Bangerter, who is divorcing Dee Roy Bangerter, receives half of her husband’s stock in a property settlement, according to a proxy statement filed with the Securities and Exchange Commission.

Janice Bangerter already has signed an agreement giving Nelson voting control of any Care stock she receives, the proxy states.

Though Hazelbaker characterizes his offer as amicable, the Bangerters may view it differently.

“If you’re involved in a brawl with somebody, and he comes up and offers a hand, do you take it or spit on it?” he said.

As part of any deal, Hazelbaker said he would seek an end to the litigation between his company and Care Enterprises.

Hazelbaker’s Americare nursing home operation had grown to 30 facilities when he sold it to Care Enterprises in 1985. He later formed Columbus-based Paradigm, which owns all or part of 10 nursing homes.

He said he contracted with Care Enterprises to operate nine of Paradigm’s facilities but became upset with his inability to obtain information from Care about the homes. He said he had borrowed nearly $30 million to finance the purchase of those facilities and needed financial information to assess his ability to repay the debt.

A year ago Care Enterprises sued Hazelbaker to stop him from terminating contracts at two of the nine facilities. But a court injunction preventing Paradigm from canceling the contracts was dissolved last May, Hazelbaker said. Since then, Care Enterprises has voluntarily left one facility, and Hazelbaker said he has terminated the company’s contracts to operate five of the other homes.

Meanwhile, Hazelbaker sued Care for $27 million, plus unspecified punitive damages, for allegedly mismanaging the facilities. Both suits are still pending.

Kristof, who was not at the company’s offices Wednesday, said he could not discuss legal matters. Efforts to reach Care Enterprises attorneys were unsuccessful because calls placed to the company were not answered.