Independent Proxy Firm Calls for Sabra-CCP Merger Veto

Another player has spoken out against the proposed $7.4 billion merger of Sabra Health Care REIT, Inc. (Nasdaq: SBRA) and Care Capital Properties (NYSE: CCP) — and this time, it’s an independent third party.

Institutional Shareholder Services (ISS), an independent proxy advisory firm, added its voice to the chorus rejecting the merger, including shareholders Hudson Bay and Eminence Capital, a pair of New York City-based hedge funds that have announced their intentions to vote against the deal.

ISS cited the fragility of CCP’s portfolio, headwinds faced by the SNF industry, and the high price that Sabra would pay for CCP assets as reasons to doubt whether the deal could be beneficial to Sabra and its shareholders.

The market supports ISS’s assessment, as evidenced by the 5.1% drop in share prices the day after Sabra’s announcement of the merger, the ISS report states. On Friday, May 5, shares were at $26.68. On Monday, May 8, after the announcement, shares were down to $25.31. Sabra share prices have continued to decline since the announcement, closing at $23.25 on July 28.

Sabra responded to ISS with a statement that condemned its decision to oppose the proposed merger and declared that Sabra is better positioned to evaluate the deal than either Hudson Bay or Eminence Capital. The statement went on to denounce ISS’s knowledge of the skilled nursing industry.

“In its report, ISS fails to demonstrate an understanding of the SNF industry,” stated the Sabra release. “Skilled nursing remains an integral component of the U.S. continuum of care that provides attractive risk adjusted returns for sophisticated and experienced healthcare investors that are able to partner with successful operators on the right assets. In the SNF industry, it is the operator that matters, and CCP’s tenants are good operators with quality assets.”

Hudson Bay also issued a statement today, supporting the ISS recommendation against the merger.

“We urge Sabra shareholders to follow ISS’s independent recommendation and to vote against this acquisition to ensure that we, as collective holders of Sabra shares, receive the value we deserve for our investment,” the Hudson Bay report stated.

Though Hudson Bay and Eminence have small stakes in Sabra, Bloomberg’s Gillian Tan noted that there have been multiple past scenarios in which activist shareholders have yielded enough influence to scuttle major mergers. Tan noted that the arguments of these smaller players — and particularly independent proxy firms like ISS — could hold sway over large shareholders Vanguard Group, BlackRock and Fidelity.

Shareholders will vote on the deal on August 15.

Written by Elizabeth Jakaitis