kindred

Kindred Healthcare, one of Louisville’s Fortune 500 companies, just became a mega-company, perhaps the fourth-largest health care employer in the United States. And Kindred’s plans for a new Broadway headquarters suddenly make sense.

Kindred has just acquired Atlanta-based Gentiva Health Services, an Atlanta-based home health care and hospice company.

Kindred executives sent out a news release stating the long-term hospital system will acquire all of the outstanding shares of Gentiva common stock for $19.50 per share in a combination of cash and stock. That’s a $2.79 per share premium over Wednesday’s closing price of $16.71 per share.

Under the terms of the agreement, Gentiva shareholders receive $14.50 per share in cash and $5 of Kindred common stock, which equates to 0.257 shares of Kindred common stock based upon an agreed upon fixed exchange ratio, according to a news release.

Gentiva has about 39 million outstanding shares, according to Google Finance.

The transaction is valued at $1.8 billion, including the assumption of Gentiva’s net debt. The companies expect the closing of the transaction to occur in the first quarter of 2015, according to the release.

The combined companies will have pro forma annual revenue of about $7.1 billion, the release states, and operating income of about $1 billion.

The interesting factor is that Kindred doesn’t expect the acquisition to drag down earnings as Kindred integrates Gentiva into its system.

Kindred expects the acquisition of Gentiva “will be immediately and significantly accretive to earnings and operating cash flows,” exclusive of transaction and integration costs, according to the release.

The company predicts the acquisition to be approximately $0.40 to $0.60 accretive to pro forma earnings, and pro forma operating cash flows of $350 million to $400 million (before capital expenditures, dividends and changes in working capital), both on a run rate basis, according to the release.

The agreement was unanimously approved by the boards of directors of both companies.

From the release:

The combination of Kindred and Gentiva will further enhance Kindred’s industry leading position as the Nation’s premier post-acute and rehabilitation services provider and make Kindred at Home the largest and most geographically diversified Home Health and Hospice organization in the United States. The combined company will:

• Serve more than one million patients per year;
• Operate in 47 states;
• Employ approximately 109,000 individuals, making it the 78th largest private employer and the fourth-largest healthcare employer in the United States;
• Be the largest operator of long-term acute care hospitals and inpatient rehabilitation facilities in the United States, as well as the Nation’s largest provider of rehabilitation, home health and hospice services and one of the leading sub-acute and skilled nursing providers;
• Deliver pro forma annual revenues of approximately $7.1 billion; and generate pro forma operating income (EBITDAR), including expected cost synergies, of $1.0 billion.
Strategic Benefits of the Combination

The purchase of a home-health/hospice system positions Kindred to reshape the U.S. health care delivery system, according to the release.

Through Kindred’s Continue the Care strategy, “the combined company will deliver patient-centered, coordinated care across the full continuum – from the hospital to the home. This integrated model is preferred by consumers as well as payors, including Affordable Care Organizations and Managed Care Organizations, as it improves quality, clinical outcomes and patient satisfaction while reducing costs.”

Last year, Insider Louisville broke the story that Kindred was acquiring several million dollars in properties around its headquarters at Fourth Street and Broadway downtown. This year, Kindred officials acknowledged the move, but said it involved relocating employees from a building on Fourth Street Live.

Now, we know what was really going on…

Terry Boyd
Terry Boyd has seven years experience as a business/finance journalist, and eight years a military reporter with European Stars and Stripes. As a banking and finance reporter at Business First, Boyd dealt directly with the most influential executives and financiers in Louisville.