French elderly care groups Korian, Medica plan merger

PARIS (Reuters) - French companies Korian and Medica announced plans on Monday to combine to create Europe's largest elderly care group with combined sales of 2.2 billion euros (1.83 billion pounds).

The potential friendly deal would see Medica merged into Korian, with Medica shareholders receiving 10 Korian shares for every 11 Medica shares owned. Korian Chief Executive Yann Coleou would become head of the enlarged company.

Shares in Medica rose as much as 8.8 percent to 21.80 euros and were trading at 20.65 euros by 0853 GMT for a market value of 989 million euros. Korian stock dropped around 5 percent to 24.07 euros, giving it a market capitalisation of 839 million.

"After years of rumours, a merger deal is happening between two of the biggest players in the elderly care sector," Gilbert Dupont analysts said in a note.

Korian and Medica said in a joint statement the deal would create a new market leader better positioned to strengthen and expand its geographical scope, more powerful to seize growth opportunities, and more diversified to respond to changing regulatory environments.

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 combined companies would target revenue of 3 billion euros by 2017, stemming from both organic growth and acquisitions, with efficiency savings of 15 million in year three after the merger.

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 or so-called silver economy.

The companies said their boards had unanimously approved the terms of a memorandum of understanding for the merger, adding that 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.

(Reporting by Dominique Vidalon; Editing by James Regan and Mark John)