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Bankrupt companies Genesis Health Ventures Inc. and The Multicare Companies Inc. want to take the novel step of emerging from Chapter 11 as one in an estimated $1.5 billion merger, but unsecured creditors of the latter are seeking to block such a deal. Metrocall Inc. and WebLink Wireless Inc. weeks ago tried to make a go at being the first-ever joint bankruptcy-merger, but the deal was scuttled May 15. Kennett Square, Pa.-based Genesis already owns 43.6 percent of Multicare under the Genesis Eldercare brandname, and that has led Multicare unsecureds to file a lawsuit claiming Genesis has a conflict of interest. Genesis hopes to turn Multicare into a wholly owned subsidiary under a joint reorganization plan filed by both companies in the U.S. Bankruptcy Court in Wilmington, Del., Tuesday. Both companies filed for Chapter 11 separately in Wilmington, but both did so on the same day — June 22, 2000. The major hurdle to the joint reorganization plan, however, is a motion filed in the case by Multicare’s unsecured creditors’ committee that alleges Genesis already has too much control over Multicare and that more value could be wrung out of Multicare if a third party bought it, attorneys said Wednesday. “The Multicare unsecured creditors’ committee filed a motion in May seeking a court-appointed U.S. Trustee to bid out the multiple contracts between Multicare and Genesis and that’s the big obstacle in the reorganization plan,” said Lisa Beckerman, lead counsel for the unsecured creditors’ committee at Genesis for Akin, Gump, Strauss, Hauer & Feld. “All the other parties reached a consensual agreement on the plan but Multicare’s unsecured creditors think there’s more value for them if a third party managed Multicare.” Genesis already manages Multicare under several contracts, Beckerman explained, and Multicare’s unsecured creditors charged in their litigation that there’s a conflict of interest in those contracts since Multicare’s board is made up primarily of Genesis employees. Multicare outsources contracts for such things as administration, pharmaceutical management and therapeutical services to Genesis. Multicare’s unsecured creditors allege that a conflict-of-interest involving such contracts means Multicare is paying more than market value for Genesis’ help, Beckerman explained. The motion was filed by David Rosner at Kasowitz Benson Torres & Friedman in New York on behalf of Multicare’s unsecured creditors and is in discovery, Beckerman said. A court hearing before Judge Judith Wizmur in Wilmington is scheduled for June 26. “The plan could clearly fall apart if Judge Wizmur decides to appoint a U.S. Trustee,” Beckerman said. Rosner could not be reached for comment and Genesis and Multicare did not return several phone calls. Multicare has two types of unsecured creditors, Beckerman explained, one for general unsecured claims estimated at $26 million and another for 9 percent senior subordinated notes due 2007 with estimated claims of $258 million. “We looked at both the perfection of the bank’s liens and at the value of Genesis and concluded that the proposed distribution of unsecured creditors fall within the range of what is a reasonably expected outcome in litigation,” she said. The estimated value of the combined new entity that could emerge from Chapter 11 under the joint reorganization plan submitted Tuesday was $1.5 billion, Beckerman said. Genesis hopes to turn 96 percent of newly issued common stock in the new entity over to the senior secured creditors of both Genesis and Multicare and the balance to the unsecured creditors at Genesis, who’d also get some warrants at Genesis with a $1 strike price, Beckerman said. The steering committees of the bank group, which Mellon Bank N.A. led for both Genesis and Multicare, and the unsecured creditors’ committee at Genesis all agreed to the plan, she said. Genesis and Multicare, also based in Kennett Square, hope to follow a handful of healthcare providers out of Chapter 11 this year after five of the nation’s largest nursing home operators filed for Chapter 11 between 1999 and 2000 when Medicare slashed its reimbursements. Medicare cut that funding by some $115 billion for the five-year period starting in 1999 before millions of dollars were restored starting in April 2000. Elderly care provider Genesis and Multicare cited Medicare cutbacks when they each filed for Chapter 11. Paul Shalhoub, Marc Abrams, Steven Wilamowsky and Tariq Mundiya are lead debtor counsel at Willkie Farr & Gallagher for Multicare and Robert Brady and Maureen Luke are debtor co-counsel at Young Conaway Stargatt & Taylor in Wilmington. Beckerman, Mark Taylor and Shuba Satyaprasad at Akin, Gump are counsel for the unsecured creditors’ committee at Genesis and Laura Davis Jones is local co-counsel at Pachulski, Stang, Ziehl, Jones & Young. Michael Walsh, Gary Holtzer, Michele Meises, Christopher Marcus, Hans Hwang and Samuel Kohn are lead debtor counsel for Genesis at Weil, Gotshal & Manges while Soren Reynertson and Matthew Morawa led the financial advisers for Genesis at UBS Warburg. Richard Toder, Robert Scheibe and Peter Montoni are counsel at Morgan Lewis & Bockius for Mellon Bank as the agent for the bank group for both bankruptcies. Copyright (c)2001 TDD, LLC. All rights reserved.

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