The Advocat shareholder who in May sued the company over its rejection of a buyout offer is coming after the company a second time. Frank Rossello, who had his first case dismissed last month by District Court Judge Todd Campbell, has now filed a putative class action in Williamson County Chancery Court.
SEE ALSO: Advocat class action dismissed
A putative class action against the board of Advocat was dismissed from District Court earlier this month on procedural grounds, specifically because it did not satisfy the federal case requirement that the claim involved was for more than $75,000. But that doesn't mean the case, which centers on the buyout approach made by the Covington Investments group that owns about 15 percent of Advocat, is over: The plaintiffs can refile in state court if they choose.
The largest investor in Brentwood-based Advocat says its $50 million bid to acquire the nursing home operator still stands, especially after the company reported "disappointing" second-quarter profits.
In a letter to shareholders, John McMullan said he and his Covington Investments team "continue to see little real evidence of positive execution" from Advocat's managers. During the second quarter, they point out, revenues dipped and operating profits fell significantly. Furthermore, McMullen added, CEO Kelly Gill's plans to emphasize acquisitions going forward don't inspire much confidence.
"We see this next phase as unlikely, uncertain and, moreover, premature at best given that the Company is yet to demonstrate any ability to improve performance at its existing portfolio of properties," said McMullan, whose group owns about 15 percent of Brentwood-based Advocat.
Covington went public with its $8.50-per-share offer in May but was quickly shot down by Advocat's board. McMullan says the company's refusal to discuss the bid is a serious failure in governance that benefits only Advocat insiders.
"We expect you are, in turn, increasingly concerned and frustrated, as are we, with Advocat's cavalier attitude about this matter and utter disregard for the views and concerns of its outside shareholders," McMullan wrote. "Your views should be equally, if not more, important than Advocat's inside shareholders."
Covington's public resurfacing — read the full statement here — have given Advocat shares (Ticker: AVCA) a nice boost. In afternoon trading, the shares were up more than 5 percent to almost $6.20. That's still more than 25 percent below Covington's bid.
The investment group seeking to take over Advocat is pressing the nursing home chain's investors to get in touch with their directors and executives about the recently announced buyout of Sun Healthcare by privately held Genesis HealthCare. Covington Health Group says its bid for Advocat is even better than the Sun Healthcare deal.
The directors of nursing home operator Advocat formally responded to the publicly announced buyout bid from Georgia-based Covington Health Group by saying the offer doesn't take into account the company's investment in growth and plans to add to its properties. In addition, they say, the market is undervaluing the senior living sector as a whole, so this really isn't the right time to seriously consider a sale.
But the biggest sign that Covington's bid may not go anywhere soon: The board's largest shareholders, Wallace Olson and Chad McCurdy's Marlin Capital, have closed ranks. Combined, the two own more than 29 percent of Advocat's stock (Ticker: AVCA).
As noted above, two of our significant shareholders met with you solely in their role as shareholders of the Company. Based on conversations with those shareholders following that meeting, the Board believes that those shareholders are not interested in selling their shares at the proposed price. While we acknowledge that those shareholders do not speak for all shareholders, we believe they serve as useful proxies for the views of many of our shareholders, and the significance of their ownership position has bearing on the likelihood that your proposal could be successfully concluded.
Having had the weekend to chew on the $50 million buyout bid Advocat's board received last week, investors seem to have grown no less skeptical of its chances. After two hours of Monday trading, Advocat shares are up only slightly and still about 20 percent below the price offered by Covington Health Group.