M&A

17 November, 2009

UPDATE 2-CapitalSource to sell healthcare net lease portfolio

* To sell 143 properties to Omega Healthcare Investors

* To get $331 mln, Omega to assume $529 mln of debt

* Says founder & CEO Delaney to become exec chairman

* Names 2 co-CEOs; COO to step down

* Shares rise as much as 10 pct

By Archana Shankar

BANGALORE, Nov 17 (Reuters) - CapitalSource Inc (CSE.N) said it will sell most of its healthcare net lease portfolio to Omega Healthcare Investors Inc (OHI.N) in a cash and stock deal, and that its chief executive will become executive chairman effective Jan. 1.

Omega will pay $280 million in cash and $51 million in stock for 143 long-term care facilities, while assuming $529 million of mortgage debt related to the assets being purchased, the commercial lender said.

Including debt, the deal is valued at $860 million, the company said.

"The transaction increases the cash liquidity at the parent company which has been a concern," analyst Michael Taiano of Sandler O'Neill & Partners said by phone.

CapitalSource had lost $274 million in the third quarter, hurt by a two-fold rise in bad loan provisions and an accounting charge.

CapitalSource said its founder and Chief Executive John Delaney will become executive chairman, while Steven Museles, chief legal officer, and James Pieczynski, president of its healthcare real estate business, will become co-CEOs.

The company also said its Chief Operating Officer Dean Graham will step down effective Jan. 1, and will stay on as a consultant through 2010.

CapitalSource will make a severance payment of about $4.0 million to Graham, it said in a regulatory filing.

In a statement, Delaney said his attention will be directed to key decisions and relationships guiding the overall strategic direction, capital allocation and future growth of the company. Shares of the company rose as much as 11 percent to $4.09 in early trade Tuesday before paring some of the gains, and were up 2 percent at $3.80 in late morning trade on the New York Stock Exchange.

"This transaction is another important step in our ongoing transformation to a bank model," said Delaney, who plans to pay down debt with the cash proceeds.

"CapitalSource is required to use at least 75 percent of the proceeds from this transaction to pay down the syndicated bank facility. This reduces the facility to $230 million from $477 million at Sept. 30," analyst Moshe Orenbuch of Credit Suisse said.

CapitalSource, which expects to complete the transaction in three steps with the last by end-2011, said it will own 38 more long-term care facilities not included in the sale but expects to sell them separately.

"Assuming CapitalSource is able to sell the remaining 38 facilities for comparable prices to this sale, we see $475-500 million of equity value for the healthcare net lease business, roughly in line with our estimated value," Orenbuch said. (Reporting by Archana Shankar in Bangalore; Editing by Anne Pallivathuckal and Gopakumar Warrier)

Source: http://www.reuters.com