Home » Kindred makes offer to acquire post-acute-care provider Gentiva Health Services of Atlanta in deal valued at $1.6 billion

Kindred makes offer to acquire post-acute-care provider Gentiva Health Services of Atlanta in deal valued at $1.6 billion

LOUISVILLE, Ky. (May 15, 2014) — Kindred Healthcare Inc. (NYSE:KND) today announced a proposal to acquire all of the outstanding shares of common stock of Gentiva Health Services, Inc. (NASDAQ:GTIV) for a combination of $7 per share in cash and $7 of Kindred common stock. Kindred also offered to increase its offer to 100 percent cash if the Gentiva Board so elects.

Based upon the closing price of Gentiva’s common stock on May 14, Kindred’s proposal would provide Gentiva shareholders with consideration currently valued at approximately $14 per share, representing a 64 percent premium over the closing price of Gentiva common stock on May 14, and a 59 percent premium over Gentiva’s 60-day volume-weighted average closing price. The proposed price for Gentiva implies a total equity value of approximately $533 million. With the assumption of Gentiva’s debt, the transaction would be valued at approximately $1.6 billion.

The combination of Kindred and Gentiva would further enhance Kindred’s position as the nation’s premier post-acute care provider. The combined company would:

• Serve nearly 127,000 patients per day;
• Operate in 47 states;
• Employ approximately 110,000 individuals, making it the 78th largest private employer in the United States;
• Deliver pro forma annual revenues of approximately $7.2 billion; and
• Generate pro forma EBITDAR of nearly $1 billion.

“This compelling combination would unite two highly complementary businesses by joining Kindred’s resources with Gentiva’s home health and hospice capabilities. Together we would create a unique platform to ‘Continue the Care’ by delivering patient-centered care across the full spectrum—from hospital to outpatient facility to the patient’s home,” said Kindred CEO Paul J. Diaz. “The combined company’s national footprint would allow it to deliver enhanced coordinated care, helping to transition patients home more quickly and provide more patient-centric, cost-effective treatment. We would also benefit from cost, capital and revenue synergies as well as enhanced relationships with physicians and managed care organizations, augmenting our platform for value- and risk-based payment models.”

Gentiva shareholders would benefit from a significant and immediate premium, a meaningful dividend, accelerated growth and the enhanced financial strength of the combined company. Kindred believes the transaction would be highly accretive to earnings and operating cash flows, exclusive of one-time items related primarily to transaction and integration costs. Kindred expects the combined company would have operating and financial synergies of approximately $60 million to $80 million within a period of two years following consummation of the acquisition, with $40 million expected in the first year after closing.

Diaz added, “Kindred, together with Gentiva, would help accelerate the evolution of population health and medical homes through our combined national platform, and the adoption of best practices in innovation and clinical care in more local communities. With greater financial flexibility and a lower cost of capital, the combined company would be able to invest in clinical programs, information technology and infrastructure to improve care management and clinical outcomes, drive growth, reduce costs and deliver value for our patients, payors, hospital and physician partners, and shareholders.”

Diaz concluded, “The strategic and financial benefits of the proposed transaction are highly compelling, and we are confident that it would create more value for Gentiva stakeholders than Gentiva could achieve on a standalone basis. Our proposal provides a significant and immediate premium for Gentiva shareholders, while allowing them to benefit from the upside potential inherent in this combination. We have undertaken extensive efforts and had several private discussions with Gentiva’s management team in an effort to engage Gentiva on a mutually acceptable transaction. Gentiva has indicated repeatedly that it is not willing to discuss a transaction at this time. As such, we have elected to make our compelling proposal known to Gentiva’s shareholders — a proposal that represents a 64 percent premium to yesterday’s closing price and a 40 percent premium to Wall Street analysts’ one-year median price target of $10 per share. We strongly believe that many of Gentiva’s shareholders, and in particular the greater than 20 percent who are also shareholders of Kindred, would support the transaction and favor the stock of the combined company if given an opportunity. We look forward to the opportunity to engage with Gentiva’s Board and management team to discuss our proposal and agree upon the terms of a transaction that benefits both companies and all of our stakeholders. Kindred is ready and willing to complete this transaction, and we are prepared to take the necessary steps to realize the benefits inherent in this proposed combination.”

Benjamin A. Breier, Kindred’s president and Chief Operating Officer, said, “Kindred has an outstanding track record of successfully integrating acquisitions and a history of operational excellence. This transaction would position the combined company for accelerated growth and advance our mission of promoting healing, providing hope, preserving dignity and producing value for every constituent we serve. We would be excited to welcome Gentiva’s 47,000 talented employees to join us in this mission as part of the Kindred family.”

Breier added, “Kindred’s teammates are the heart of our culture and have made Kindred one of Fortune Magazine’s Most Admired Healthcare Companies six years in a row. In recent years, Kindred has taken a series of steps to strengthen and grow our operations; we believe this transaction would be a logical extension of our successful repositioning efforts. Our combined scale and resources would also facilitate job creation, and allow for greater investment in the professional development and career advancement of our teams. We look forward to the opportunity to bring Gentiva’s employees together with the team members of Kindred, and believe our combined talents would help us make even greater strides in clinical innovation and excellence.”

Stephen D. Farber, Kindred executive vice president and chief financial officer, said, “From a financial perspective, this combination checks all of the boxes: a compelling and immediate premium for Gentiva, meaningful accretion for Kindred shareholders, and the opportunity for shareholders of both companies to participate in the accelerated growth of the combined company. We have structured the proposed combination with a mix of debt, equity and other instruments to maintain Kindred’s existing leverage profile and deleveraging cadence. The combined company would have the financial strength and investment capacity to support our nationwide operations and our 110,000 teammates, as well as accelerate investments in further expanding our ‘Continue the Care’ delivery model.”

Below is the text of a letter that was sent on May 5, 2014, to Mr. Rodney Windley, Executive Chairman of the Board of Directors of Gentiva, and Tony Strange, Chief Executive Officer, President and member of the Board of Gentiva.

May 5, 2014

Rodney Windley
Executive Chairman
Gentiva Health Services, Inc.
3350 Riverwood Parkway, Suite 1400
Atlanta, GA 30339

Tony Strange
Chief Executive Officer, President and Director
Gentiva Health Services, Inc.
3350 Riverwood Parkway, Suite 1400
Atlanta, GA 30339

Dear Rod and Tony:

I appreciate the time you have taken to speak with me as well as the time your Board of Directors has taken to review our offer to combine our two businesses. We are very disappointed, however, that we have not been able to engage more substantially on the strategic, financial and industrial logic of the combination of our two companies and the opportunity it affords our patients for a more integrated care experience. It is unclear to us how Gentiva on a standalone basis can replicate the clinical, strategic and financial opportunities generated from our combined operations. Moreover, now is the perfect time to bring Gentiva and Kindred together and leverage our combined platforms to achieve revenue, cost and capital synergies which will better positions each of us to not just respond to, but to help shape, the evolution of the post-acute care industry.

Our team would like to work with you and your team towards crafting a transaction that would benefit all of our shareholders. In light of your April 28, 2014 letter, articulating Gentiva’s unwillingness to engage in meaningful dialogue on a potential combination of our two companies, Kindred is prepared to increase its offer to $14.00 per share composed of 50% stock and 50% cash. Additionally, given our confidence in the strategic and financial opportunities of the combination, Kindred is prepared to increase the cash portion of consideration up to 100% at your shareholders’ election. We strongly believe that many of your shareholders, and in particular the greater than 20% of Gentiva shareholders who are also shareholders of Kindred, will favor the stock of the combined company if given an opportunity. This proposal represents a significant premium of 82% over Gentiva’s closing price on May 2, 2014. While the aggregate cash component of consideration would represent approximately 91% of Gentiva’s market capitalization, the Gentiva shareholders also would continue to benefit from the additional value creation in the combined company.

We have been working with Citi to assess financing options, and we and Citi are highly confident in the ability to raise the necessary funds to complete the proposed transaction, as reflected in the attached correspondence from Citi.

I also want to respond to your comments regarding Kindred approaching executives of Gentiva. First, let me assure you that we have not shared any material non-public information with respect to our discussions with anyone other than our Board and our teammates and advisors working on the transaction. Moreover, I want to assure you that we are not soliciting any of your executive officers for employment at Kindred nor have we engaged in any broad solicitation or recruitment of Gentiva employees. From time to time, however, we may hire current and former employees of Gentiva, just as we assume that Gentiva, from time to time, may hire current and former Kindred employees. If in the ordinary course we were to hire any of Gentiva’s employees we would not knowingly violate any enforceable non-compete restrictions.

Kindred would welcome discussing the proposed transaction with you and the Gentiva Board of Directors in order to understand your Board’s views, facilitate further interaction between our respective management teams and to work towards achieving a transaction in the best interest of all of our constituents. To that end, we request a meeting with you and your independent directors to present what we think is an incredibly compelling opportunity for our collective shareholder groups, patients and employees. If we ultimately pursue a transaction that includes a significant stock component, we also would be open to expanding the Kindred Board of Directors to include representation from your Board.

This letter is not intended to create or constitute any legally binding obligation, liability or commitment by us regarding a transaction or any other matter. There will be no legally binding agreement between us regarding a transaction unless and until a definitive agreement is executed.

We are very excited by the prospect of combining our two businesses. Our proposed terms reflect our current understanding of the attractiveness of Gentiva’s business and the value that a transaction could create for both sets of our shareholders. We trust you and your Board will carefully evaluate the logic of the combination and look forward to productive discussions regarding our proposal. We respectfully request your response by the close of business on May 13, 2014.

Please feel free to contact me with any questions.

Yours truly,

Paul J. Diaz
Chief Executive Officer
Kindred Healthcare, Inc.

cc: Edward L. Kuntz, Chairman of the Board

In response, Gentiva sent the following letter to Kindred:

May 13, 2014

Kindred Healthcare, Inc.
680 South Fourth Street
Louisville, Kentucky 40202

Attention: Paul J. Diaz, Chief Executive Officer
Edward L. Kuntz, Chairman of the Board

Dear Paul:

Thank you for your letter dated May 5, 2014. As we noted in our prior letter to you, dated April 28, 2014, last month our Board of Directors gave careful consideration to Kindred Healthcare’s unsolicited proposal to combine our two businesses. Our Board of Directors has, with the assistance of its legal and financial advisors, once again carefully considered Kindred’s unsolicited proposal to combine our two businesses. Having considered your revised proposal, our Board continues to believe that our long-term strategy as a stand-alone company will generate substantially more value to our shareholders. Accordingly, at this time, we are not interested in pursuing the transaction you are proposing.

Please feel free to contact me with any questions.


Rodney D. Windley, Executive Chairman

Victor F. Ganzi,  Lead Director
Gentiva Health Services Inc.

cc: Tony Strange
Chief Executive Officer

Citi is acting as financial advisor to Kindred and Cleary Gottlieb Steen & Hamilton LLP is acting as legal advisor.