PARIS French nursing home operator Korian (KORI.PA) has agreed to buy rival Medica MDCA.PA for 1.1 billion euros ($1.48 billion) in a deal that will create Europe's largest elderly care group.
With an ageing European population, and public health care systems under pressure due to the economic crisis, private companies see opportunities to grow in the elderly care sector.
According to national statistics institute INSEE, the number of people over 60 in France alone will reach 23.6 million by 2050, up from 15.6 million in 2012.
The deal, which the companies described as a friendly merger, sees Medica shareholders receiving 10 Korian shares for every 11 Medica shares owned. The deal represents a 15 percent premium to Medica's closing share price of 20.03 euros on November 15.
The companies said in a joint statement the deal would create a market leader better positioned to expand, more powerful to seize growth opportunities, and more diversified to respond to changing regulation in the industry.
The group would have leading positions in France, Germany, and Belgium, and be number two in Italy, with close to 40,000 employees and 600 facilities, the companies said.
The merged group would overtake rival Orpea (ORP.PA), which until now was the French leader by revenue.
Shares in Medica rose as much as 8.8 percent to 21.80 euros and were trading at 21.14 euros by 1203 GMT, valuing it at 101 million euros. Korian stock dropped around 2.7 percent to 24.64 euros, giving it a market capitalization of 850 million euros.
"After years of rumors, a merger deal is happening between two of the biggest players in the elderly care sector," Gilbert Dupont analysts said in a note.
The deal will create a company with combined sales 2.2 billion euros ($2.96 billion), with 60 percent of revenue coming from France, 20 percent from Germany, 8 percent in Begium and 2 percent in Italy.
The combined companies would target revenue of 3 billion euros by 2017, stemming from mostly from organic growth but also from acquisitions, with efficiency savings of 15 million in year three after the merger.
Both companies said the deal would be submitted for approval to shareholders of both companies in the first quarter of 2014.
Korian is being advised by JPMorgan, BNP Paribas, CACIB and Bredin Prat, while Medica is being advised by Credit Suisse and Cleary Gottlieb. ($1 = 0.7421 euros)
(Reporting by Dominique Vidalon; Editing by Louise Heavens)