Multi-Billion Dollar Bidding War for Home Health Giant Escalates

What began as an $1.6 billion proposal to acquire home health competitor Gentiva Health Services, Inc. (NYSE:GTIV) has escalated into an all out bidding war between Kindred Healthcare, Inc. (NYSE:KND) and an unnamed mystery bidder.

Kindred has unsuccessfully been able to woo Gentiva into accepting any of its purchase proposals since its initial offer in May, when it proposed to acquire all of Gentiva’s outstanding common stock shares for a price of $14 per share.

Since then, Kindred has upped its bid several times meeting rejection from Gentiva’s Board of Directors for each proposal. After the initial $14 offer was rejected, Kindred returned a month later, raising its offer to $14.50 per share, then again to $16 earlier this month—an 87% premium to Gentiva’s closing share price on May 14, 2014, which is also the day before Kindred made public its proposal to acquire the company.

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In response to the last offer, Gentiva’s Board unanimously declined, reaffirming its previous claims that each of Kindred’s previous proposals “significantly undervalues Gentiva’s shares” and is “not in the best interests of Gentiva stockholders.”

The company did, however, introduce a new wild card into the ongoing drama—an alternative bid from a “recognized owner, operator, and investor in the sector” valued at $17.25 per share, Gentiva stated in a release last week.

Though the mystery bidder’s identity has not yet been disclosed, analysts have pegged the unknown party to be a private equity firm, one that has had a presence in the home health and hospice space in the past.

“While the company did not specify who the offer came from, we believe it is likely a private equity firm that owns a home health and hospice business, possibly Cressey & Co. or GTCR,” stated Kevin Ellich, a senior research analyst with Piper Jaffray, in a note released Thursday.

Under Cressey & Co.’s belt is Encompass Home Health & Hospice and Hospice Compassus. Both providers offer their services in select states nationwide across more than 100 branch locations. The company boasts a firm with experienced principals who have invested and managed over $1 billion of healthcare investments.

GTCR, a Chicago-based private equity firm that manages more than $8 billion in private equity and mezzanine capital, commands a portfolio includes Curo Health Services, a hospice provider that operates in 10 states, according to the company’s website. Curo is also headed by former Amedisys, Inc. (NASDAQ:AMED) Chief Operating Officer Larry Graham.

“There is also a possibility the offer came from KKR and would use Amedisys as the operating vehicle, although the combined leverage of the two companies seems like a deterrent for such a deal,” Ellich stated in the Piper Jaffray report.

Amedisys, of which the report notes KKR owns approximately 15%, has had its name circulated before amid the ongoing drama between Gentiva and Kindred.

In response to a previous offer snub from Gentiva at the end of June, Kindred CEO Paul Diaz sent a letter to Gentiva CEO Tony Strange and Executive Chairman Rod Windley, urging them to reconsider their rumored acquisition of Amedisys.

“We are concerned that, while refusing to discuss Kindred’s highly attractive cash offer, the Gentiva board may be pursuing a course that would disenfranchise its shareholders through a value-destroying and highly levered transaction with Amedisys,” Diaz wrote.

The company, however, remains adamant in its quest to acquire the Atlanta, Georgia home health and hospice provider.

“Specifically, we confirm that Kindred would be prepared to enter into a negotiated agreement to acquire all of the outstanding shares of Gentiva for $17.25 per share, provided that we are permitted to conduct diligence to confirm such additional value is warranted,” Diaz wrote.

Lastly, another possible suitor who may likely be in the contest for Gentiva also includes Formation Capital, a private equity firm that maintains a national presence with over $4 billion of managed investments in healthcare real estate comprising over 60,000 beds in 35 states—one that Bloomberg last week identified as the actual bidder, citing an unnamed source familiar with the matter.

An investor primarily in the senior housing and post-acute care industries, Formation Capital in 2007 completed its acquisition of Genesis HealthCare Corporation in a total enterprise transaction value of approximately $2 billion.

Prior to Kindred’s announcement Monday, Piper Jaffray sees the alternative proposal of $17.25 as attractive. But now that Kindred has equaled that amount, the ball is now in the court of Gentiva executives.

Written by Jason Oliva

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