Medical Facilities Corporation
TSX : DR.UN

Medical Facilities Corporation

June 02, 2005 15:38 ET

Medical Facilities Corporation Announces The Acquisition of a 51% Interest in The Oklahoma Spine Hospital, L.L.C. And Bought Deal Financing

TORONTO, ONTARIO--(CCNMatthews - June 2, 2005) - Medical Facilities Corporation (the "Corporation" or "MFC") (TSX:DR.UN) announced today that it has entered into a definitive agreement to acquire a 51% interest in the Oklahoma Spine Hospital, L.L.C. ("OSH"). OSH operates the Oklahoma Spine Hospital, a physician-owned specialty hospital located in Oklahoma City, Oklahoma that provides advanced medical and surgical treatment for patients suffering from disorders of the spine and chronic pain.

The Corporation is acquiring a 51% interest in OSH for a purchase price of approximately US$44.1 million. The current physician-owners of OSH will retain a 49% interest (14% will be exchangeable for IPS units and 35% will be non-transferable). The transaction, which has been approved by the respective boards of the Corporation and OSH subject to closing of the financing described below, is immediately accretive to the Corporation's cash available for distribution per IPS.

On a pro forma basis, the combined businesses would have generated revenues and cash available for distribution of US$140.8 and US$27.5, respectively, during the 12 months ended March 31, 2005, resulting in accretion to cash available for distribution per unit of approximately 7.0% excluding any potential synergies that might be realized.

Dr. Don Schellpfeffer, the Chief Executive Officer of MFC, and Dr. Larry Teuber, the President of MFC, said: "We are excited to add the Oklahoma Spine Hospital to the Corporation's three founding hospitals in South Dakota. It is highly regarded for the quality of its care and services and was one of first physician-owned and operated specialty surgical spine hospitals in the United States. This transaction is consistent with our stated strategy to grow distributable cash by identifying and executing accretive acquisitions in what remains a highly fragmented industry. The acquisition of OSH provides significant diversification benefits and is immediately accretive to MFC. We expect that this acquisition will help us to build on MFC's strong momentum."

MFC owns a 51% interest in each of three Centers, each of which is a specialty surgical hospital located in South Dakota. The three Centers perform scheduled surgical, imaging and diagnostic procedures and derive their revenue from the fees charged for the use of their facilities. The Corporation is structured so that a majority of its free cash flows from operations are distributed to holders of its IPSs with a portion of such distributions being interest payments on the subordinated debt component.

TRANSACTION BENEFITS

The acquisition provides the following key benefits to unitholders:

- Accretion of approximately 7.0% to pro forma cash available for distribution per unit for the 12 months ended March 31, 2005 excluding any potential synergies that might be realized.

- Adds a fourth successful and growing specialty hospital, highly regarded for the quality of its care and service and the talents of its management, medical professionals and employees.

- Enhanced cash flow stability through a broadened geographic footprint and diversification of payor base and case mix.

- Potential for synergies through implementation of operational best practices, standardization of equipment and supplies and group purchasing programs.

- Increased scale and expanded geographic footprint will enhance the Corporation's ability to identify future acquisition opportunities by increasing its profile and through an expanded network of physician contacts.

ACQUISITION FINANCING

The Corporation has entered into an agreement to sell, on a bought deal basis, approximately C$72 million of IPSs priced at C$13.25 per IPS to a syndicate of underwriters led by BMO Nesbitt Burns Inc. The proceeds will be used to fund the OSH acquisition, related transaction expenses, additional hedging collateral and general corporate purposes including the provision of additional resources to pursue future acquisitions. In connection with the financing, the Corporation will increase the amount of its monthly forward currency hedges so that the Corporation's distributions (at present distribution levels) will be hedged for 36 months from closing. The financing is conditional on completion of the OSH acquisition.

FINANCIAL HIGHLIGHTS

The following table illustrates pro forma financial results and distributable cash for the 12 months ended March 31, 2005 after giving effect to the OSH acquisition and the acquisition financing:



Pro Forma ($'millions)

Revenue US$140.8
Cash Available for Distribution US$27.5
Cash Available for Distribution (1) CAD$36.1
Cash Available for Distribution Per Unit (Basic (2)) CAD$1.31
Approximate Accretion to Cash Available for
Distribution Per Unit 7.0%


(1) Pro forma cash available for distribution in Canadian currency was calculated as follows: (a) amounts converted under forward exchange contracts in place were converted at the rates inherent in those contracts, (b) other amounts converted during the period at rates actually realized and (c) pro forma amounts at the hedge rate under the new hedging arrangements described in this press release.

(2) Assumes the completion of the OSH acquisition and does not provide for the exchange of all exchangeable interests held by the retained interestholders in MFC's four operating subsidiaries into IPSs.

NON-GAAP MEASURES

Certain financial information contained in this press release, including references to distributable cash and EBITDA, are not standard measures under Generally Accepted Accounting Principles ("GAAP") in Canada and may not be comparable to similar measures presented by other entities. These measures are considered to be important measures used by the investment community to assess the source and sustainability of the Corporation's cash distributions and should be used to supplement other performance measures prepared in accordance with GAAP in Canada. For further information on non-GAAP financial measures used by the Corporation and a reconciliation of such measures to GAAP financial measures, see the annual and quarterly Management Discussion and Analysis and the notes to the annual and quarterly financial statements filed by the Corporation with Canadian securities regulators.

FORWARD LOOKING STATEMENTS

Certain statements in this press release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this press release, such statements use such words as "may," "will," "expect," "anticipate," "project," "believe," "plan" and other similar terminology. The risks and uncertainties are detailed from time to time in reports filed by the Corporation with the securities regulatory authorities in all of the provinces and territories of Canada to which recipients of this press release are referred for additional information concerning the Corporation, its prospects and the risks and uncertainties relating to the Corporation and its prospects. New risk factors may arise from time to time and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance and achievements of the Corporation to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as prediction of actual results. The forward-looking information contained in this press release is current only as of the date of this press release. There should not be an expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.


Contact Information

  • Medical Facilities Corporation
    Michael Salter
    Chief Financial Officer
    (local) (416) 848-7380 or
    (outside of Toronto) 1 (877) 402-7162