Kindred Healthcare Finally Buying Gentiva Health

October 9, 2014


October 9, 2014.  Nearly five months after making its unsolicited $14.00 per share bid for home health and hospice provider Gentiva Health Services (NASDAQ: GTIV), which was flatly turned down, Kindred Healthcare (NYSE: KND) has finally reached an agreement with Gentiva in a deal valued at $1.8 billion. One month after the initial offer, Kindred upped its offer by just 50 cents a share, which we thought was stubbornly low. A month after that, the offer was increased to $16.00 per share, after it was disclosed that another bidder was now involved. By the end of July, Kindred increased its offer again to $17.25 per share, but there was always a Gentiva concern about how much was cash versus Kindred stock. At the time, we thought Kindred should walk away if Gentiva continued to balk at any negotiations. After two months of silence, it looks like they had been at the table together.

In the current deal, Kindred will be paying $19.50 per share, made up of $14.50 per share in cash and $5.00 per share in Kindred stock. The $1.8 billion value includes assumed debt. Apparently, the acquisition will be significantly accretive to Kindred, by about 40 cents to 60 cents per share to pro forma earnings. At the new, high price, if it is that accretive, we wonder what was taking Kindred so long to up the ante. In addition, Gentiva is one of the country’s largest home health and hospice providers, with more than $1.8 billion in revenue. This will be a transformative acquisition for Kindred, putting it into the unique position of being a truly national post-acute provider with everything from LTACs to rehab hospitals to SNFs to home health and hospice in a big way, with a company-wide $7.1 billion in annual revenues. One concern we have is how this acquisition will impact Kindred’s focus on its 20 Integrated Care Markets. There must be many Gentiva locations well outside these 20 markets that Kindred has been wisely focusing on. So will this acquisition result in some significant divestitures, a future dilution of this geographically focused strategy, or an expansion beyond these 20 primary markets? That may be what president and COO Ben Breier will have to decide next year assuming he succeeds Paul Diaz as CEO on schedule.

Finally, there must be some Gentiva shareholders who don’t think the fat lady has sung her final song in this transaction. Earlier this morning, Gentiva’s shares traded as high as $19.77 per share, or 22 cents above the agreed upon deal. Is there a private equity firm still lurking in the background? Perhaps, but they won’t have Kindred’s synergies, and a competing bid would have to have some kick.



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