Metropolitan enters definitive merger agreement to acquire Continucare

Jun 27 2011

Metropolitan Health Networks, Inc. (NYSE AMEX: MDF), ("Metropolitan") and Continucare Corporation (NYSE: CNU), ("Continucare") announced jointly today that they have entered into a definitive merger agreement whereby Metropolitan will acquire Continucare in a cash and stock transaction valued at approximately $416 million at the time of announcement. The transaction will create a company that provides care to over 68,000 Medicare Advantage and Medicaid customers. The combined company will own 31 primary care medical practices, utilize a network of more than 250 contracted, independent, primary care practices, and will operate in 18 Florida counties, including the Daytona, Miami, Ft. Lauderdale, West Palm Beach, and Tampa metropolitan areas.

Under the terms of the merger agreement, each share of Continucare common stock will receive $6.25 per share in cash, and 0.0414 of a share of Metropolitan common stock, which, based upon the share price at the time of announcement, is equal to approximately $0.20. The exact value of the consideration per share will depend on Metropolitan's share price at closing. Metropolitan expects to issue approximately 2.7 million shares in connection with the pending transaction.

The transaction was unanimously approved by the Board of Directors of Metropolitan. Continucare's Board of Directors also unanimously approved the merger agreement and has recommended that Continucare's shareholders approve the merger agreement and the transactions contemplated thereby. In addition, Phillip Frost, M.D., and other shareholders affiliated with Dr. Frost, who collectively own approximately 43% percent of Continucare stock, have agreed to vote their shares in favor of the merger. A vote of a majority of Continucare's outstanding common stock will be required to approve the merger agreement. The transaction is expected to close in the third calendar quarter of 2011 and is subject to standard closing conditions, including clearance under the Hart-Scott-Rodino Act.

To fund the cash component of the purchase price, Metropolitan plans to use some of its and Continucare's cash and investments, which combined totaled $93 million at March 31, 2011, and has secured a fully underwritten financing commitment from one of the leading health care lenders, GE Capital, Healthcare Financial Services and its affiliates, to arrange approximately $355 million in new credit facilities. In connection with the financing, GE Capital Markets will serve as Sole Book Runner and Sole Lead Arranger for the debt financing.

The combination of Metropolitan and Continucare will create a company with approximately $660 million in annual revenue, based upon their respective results for the twelve months ended March 31, 2011, and over $90 million in earnings before interest, taxes, depreciation and amortization (EBITDA) for the same period. Metropolitan projects annual cost savings principally from the elimination of public company-related expenses as well as the elimination of certain executive level positions, and that the transaction will be accretive in 2012.

"Continucare is viewed as an accretive and a highly complementary acquisition for Metropolitan…" commented Michael Earley, Metropolitan's Chairman and CEO.

"In keeping with our mandate to achieve both organic and acquired growth, it gives us great pleasure to make today's announcement," commented Michael Earley, Chairman and Chief Executive Officer of Metropolitan Health Networks, Inc. "For many years Continucare and Metropolitan have each worked diligently in their respective regions throughout Florida to establish high quality and profitable primary care networks and operations that serve Medicare Advantage customers, and in the case of Continucare, Medicaid customers as well. Each of our organizations have independently cultivated businesses that have little overlap and provide exemplary primary care to seniors and others in one of Florida's fastest growing industries. Continucare is viewed as an accretive and a highly complementary acquisition for Metropolitan, one that we would be proud to culminate," Earley stated.

While Metropolitan expects to achieve moderate savings through the elimination of certain Continucare public company expenses and the elimination of certain executive leadership positions, it is anticipated that the Continucare operational staff and employees will remain virtually intact as the two organizations integrate and the combined company positions itself for the potential of significant future growth as a combined entity.

"Our two companies align nicely to provide health care solutions for customers in the Medicare and Medicaid markets…" states Earley.

"Our two companies align nicely to provide health care solutions for customers in the Medicare and Medicaid markets, markets which are expected to grow significantly, nationwide, during the next decades. The pairing of Continucare with Metropolitan represents an attractive platform to address not only the growing seniors market in Florida, but the potential for out of state expansion as well. Additionally, with Florida Medicaid soon to be under the managed care umbrella, the potential for growth expands even more. Together the companies have the size and scale required to address these markets most efficiently and we expect that there will be significant employment growth opportunities under the Metropolitan operational model," Earley concluded.

"This transaction brings resources to our customers and value to our shareholders, while providing stability to the employees of both of our companies…" commented Richard Pfenniger, Chairman, CEO, and President of Continucare.

"Metropolitan and Continucare have established themselves as outstanding providers of care for their patients and have very limited geographic overlap in service offerings. As our industry has evolved, we have sharpened our focus on providing the best possible care to our patients while continuing to create value to our shareholders," commented Richard Pfenniger, Chairman, Chief Executive Officer, and President of Continucare. "We expect that this transaction will bring resources to our customers and value to our shareholders, while providing stability to the employees of both of our companies, as they continue on a combined growth plan," Pfenniger added. "It's a great day for all parties involved in this transaction," he concluded.

"With minimal overlap, we plan to use the human resource capital that the Continucare team has to offer…" commented Dr. Jose Guethon, Metropolitan's President and COO.

"Metropolitan currently operates in 16 counties, with our largest markets being the Daytona market area in Volusia and Flagler Counties. Approximately 31% of our customers are being cared for through our 13 wholly owned medical practices, with the remainder receiving care through our network of affiliated physician offices. Continucare operates in a complementary fashion with the majority of their customers receiving care through their 18 wholly owned operations in Miami-Dade, Broward and Hillsborough counties, areas in which we have little in the way of facilities or staffing. With minimal overlap, we plan to use the human resource capital that the Continucare team has to offer," commented Jose A. Guethon, MD, MBA, President and Chief Operating Officer of Metropolitan Health Networks, Inc. "The combination of our two organizations is viewed as strategically and operationally attractive," Guethon concluded.

Upon completion of the acquisition, Michael Earley will continue to serve as Chief Executive Officer and Chairman of the Board of Directors of Metropolitan, Dr. Jose Guethon will remain as its President and Chief Operating Officer, and Robert Sabo, as its Chief Financial Officer. Reporting to Dr. Guethon, Gemma Rosello, Continucare's current Executive Vice President of Operations, will continue with Metropolitan in the capacity of President of Continucare Corporation, a wholly-owned subsidiary.