Select Medical

(SEM) - Get Report

agreed to a leveraged buyout led by Welsh Caron Anderson & Stowe at $18 a share, a 27% premium from its Friday close and about 17 times this year's expected earnings.

Welsh Carson, the sprawling private-equity outfit, will shell out $2.3 billion for Select Medical and its outstanding debt. The buyer owned about 4% of Select's outstanding shares as of Sept. 4, a date on which partners Bruce Anderson owned 449,143 shares and Patrick Welsh owned 421,152 shares.

Welsh's buying group includes Thoma Cressey Equity Partners, which it describes as a private equity firm and an existing stockholder of Select, as well as certain members of Select's management. The cash consideration in the deal will be paid for shares other than those owned by stockholders in the buying group.

Under the agreement, Chairman Rocco Ortenzio, CEO Robert Ortenzio and President Thoma Cressey will exchange about 5.7 million common shares for stock in the acquisition vehicle, which is called EGL Holding. Senior management of Select will continue as senior management of the surviving corporation, receiving restricted stock and options.

Select's board unanimously approved the transaction, although a special committee will be permitted to solicit other potential bidders through Nov. 5. The deal also requires shareholder approval and the closing of financing arrangements that are outlined in bank commitment letters. Closing is seen in the first quarter of 2005.

The stock is up $3.43, or 24%, to $17.65 in premarket trading. The 52-week range is $10.25 to $19.75.