Skilled Healthcare Group Inc. (SKH) has agreed to merge with Genesis HealthCare in an all-stock deal that expands Genesis" geographic reach and creates the second largest contract therapy provider, according to a filing with the Securities and Exchange Commission.

The move comes at a time when improved state budgets and higher federal reimbursement rates have resulted in a favorable environment for skilled nursing providers.

Under the terms of the agreement, Skilled Healthcare shareholders will own 25.75% of the combined company, while Genesis HealthCare shareholders will own 74.25% of the company.

In the filing, Genesis said it had obtained an aggregate of about $1.15 billion in debt financing commitments.

Skilled Healthcare's market value at Monday's close was about $151 million based on the number of Class A shares outstanding as of Aug. 8. Shares surged 48% to $9.11 after hours.

Including Class B shares, Skilled's market capitalization is about $241 million.

The deal is expected to close in early 2015 and result in about $25 million in savings from such things as vendor repricing and contract consolidation, elimination of duplicate positions and information system integration.

"The combination will expand our core business lines, significantly diversify our markets, provide opportunities for increased efficiency and enhance our collective ability to provide the highest quality patient care," said Robert Fish, Skilled Healthcare's chief executive.

The combined company, with more than $5.5 billion in revenue and more than 95,000 employees in some 500 facilities across 34 states, will operate under the Genesis HealthCare name and will be based at Genesis's offices in Kennett Square, Penn.

Genesis Chief Executive George V. Hager Jr. will serve as the head of the combined company and Genesis Chief Financial officer Tom DiVittorio will become the combined company's CFO.

Genesis, one of the nation's largest provider of skilled nursing, was formed in 2003 in a tax-free spin-off from Genesis Health Ventures, which traces its roots to the mid-1980s, according to the company's website. In 2007, it agreed to be taken private in a $1.9 billion deal by Formation Capital LLC and JER Partners.

Write to Maria Armental at maria.armental@wsj.com

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