Ventas sweetens Sunrise bid, will drop lawsuit if successful

Ventas Inc. is betting its sweetened offer for Sunrise Senior Living Real Estate Investment Trust will be enough to seal its deal, but the final say is likely to come down to the will of a few major shareholders.

Ventas, a seniors housing company based in Louisville, Ky., raised its bid for Sunrise to $16.50 a unit from $15 yesterday in the face of mounting investor pressure and just hours before shareholders were scheduled to vote on the sale of the Toronto-based seniors REIT.

The new offer, which Ventas characterized as its "best and final," follows weeks of legal wrangling that culminated with Ventas launching a lawsuit last week against Sunrise, alleging that it had breached the terms of their takeover contract. Ventas has also successfully used the courts to have a rival, $18-a-unit bid disqualified.

Douglas MacLatchy, Sunrise's chief executive officer, said the new Ventas bid, finalized on Tuesday night, represents "exceptional value" for unit holders and sets a new benchmark for Canadian REITs. He said his company will begin contacting major shareholders asking them to support the deal, rather than bet that Health Care Property Investors Inc. will return to the table if the Ventas offer is rejected. A new vote date has been set for April 19 and Mr. MacLatchy said he will spend the next week making the case for the deal to investors.

"Why would you hold out for something that potentially may not be there and potentially may not be any better," he said in an interview. "That [HCP] offer was always conditional."

Under the terms of the increased offer, Ventas has also agreed to drop its suit against Sunrise if its bid is successful. Still, several market observers said yesterday it is still unclear whether the Ventas bid will gain the support it needs, especially since that support appears to rest in the hands of a few large investors.

"This is a match of wills," said one analyst who follows the stock. "There is a chance they will hold out for a higher price. They are basically playing a game of chicken."

Ventas chief executive Debra Cafaro labelled the bid as a final offer. "If we do not complete this transaction at this price, we will focus our attention on the other attractive acquisition opportunities in our pipeline," she said in a statement.

In order to be successful, Ventas needs to gain the backing of two-thirds of investors who held the stock on Feb. 19. Since that time, a large number of units have traded hands, and some analysts estimate that up to half of the current Sunrise owners are ineligible to vote.

That fact has increased the clout of a few key investors whose support will be key to the success of any deal. Earlier this week, Morgan Stanley Investment Management Inc. announced that it holds a 12. 9-per-cent interest in Sunrise, which it had "inadvertently" failed to disclose for close to a year.

Public filings also show that ING Clarion Real Estate Securities held a significant position in the REIT at the end of 2006, although they were not identified as a major shareholder by Sunrise in the takeover circular released last month.

Rossa O'Reilly, an analyst who follows Sunrise for CIBC World Markets, expects the new offer will be rejected by investors looking for a higher bid. The fact that more than 167 million shares of the REIT have traded hands at an average price of $17.53 since Feb. 15 suggests many investors believe a higher offer is possible and are unlikely to accept the revised Ventas bid, he said in a note to investors.

The REIT has about 70 million units outstanding. Units closed yesterday at $16.73, up 8 cents on the Toronto Stock Exchange.

Royal Bank of Canada analyst Neil Downey was more optimistic, stating that he believes that the firm Ventas offer, which represents a 49-per-cent premium on the preoffer price, will be successful.

Even if the Ventas deal is passed, others said it likely will not end the legal woes. Actions might still be taken by shareholders against the Sunrise board, one analyst suggested, and there could also be grounds for others to launch suits. "It could be an unpleasant situation under either scenario," said one analyst, who asked not to be identified.

Mr. MacLatchy, for his part, said he does not think Sunrise would take any legal action.