ISS Urges Sabra Investors to Vote Against Care Capital Deal

(Bloomberg) -- A prominent shareholder advisory firm has come out against Sabra Health Care REIT Inc.'s proposed takeover of Care Capital Properties Inc., adding fuel to arguments leveled by two dissident shareholders that oppose the deal.

Institutional Shareholder Services Inc. recommended shareholders vote against a proposal to issue shares to support the merger, citing fragility in Chicago-based Care Capital's portfolio, its exposure to the skilled nursing-facility industry and the high price proposed for the assets.

“In light of these factors and the market's negative reaction to the deal, support for the proposal is not warranted,” ISS said in a report Wednesday. The firm also recommended shareholders vote against a proposal that would allow Sabra to adjourn the meeting, if necessary, to solicit further proxies if there were insufficient votes to approve the deal.

Two of Sabra's shareholders -- Hudson Bay Capital Management and Eminence Capital -- have gone public with their opposition to the deal ahead of the shareholder vote, scheduled for Aug. 15.

Sabra said in a statement that it believed ISS reached the wrong conclusion and urged shareholders to vote for the deal.

“There are many reasons why the Sabra board and management team believe the combination with CCP is compelling, including the fact that it diversifies Sabra's tenant base to decrease concentration from its top five tenants, delivering significant value creation and dividend growth, increasing scale, and helping to achieve investment grade credit ratings and balance sheet strength,” Sabra said.

Care Capital believes ISS reached the wrong conclusion in failing to recommend the merger to Sabra shareholders, a representative for the company said in an emailed statement.

Under the terms of the deal, Care Capital shareholders would receive 1.123 Sabra shares for each Care Capital share. That represented about a 12 percent premium to Care Capital's closing price on May 5, the last trading day before the deal announcement.

Eminence and Hudson Bay said in separate statements that they were pleased with the ISS decision.

Shares in Sabra have fallen about 13 percent since the deal was announced while Care Capital is down about 8 percent over the same period, according to data compiled by Bloomberg.

--With assistance from Joshua Fineman

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Devin Banerjee