Kindred, About to Complete SNF Exit, Sold to Humana for $4.1B

Kindred Healthcare (NYSE: KND) on Tuesday announced a definitive agreement to be acquired by a group of three companies — TPG Capital; Welsh, Carson, Anderson & Stowe (WCAS); and Humana Inc. (NYSE: HUM) — for approximately $4.1 billion in cash.

The deal had been rumored over the weekend after the Wall Street Journal reported Kindred, the nation’s largest home health care provider, was in talks to be acquired.

Under terms of the deal, Kindred stakeholders will receive $9 in cash per share of common stock, approximately a 27% premium to Kindred’s 90-day volume weighted average price.


“We are pleased to have reached this agreement, which will deliver significant cash value to Kindred’s stockholders and concludes a robust strategic review undertaken by the Board and management team over the course of 2017,” Benjamin Breier, president and CEO of Kindred, said in a press release.

“We believe this agreement maximizes value for stockholders and represents a significant step forward in transforming home healthcare in America by enhancing access to care and reducing costs for people living with chronic conditions. In addition, the specialty hospital company, Kindred Healthcare, will be uniquely positioned to care for the most medically-complex and rehab-intensive populations.”

The deal comes as Kindred looks to wrap up its exit from the skilled nursing industry, first announced in June. As of earlier this month, the company had just five SNFs and one assisted living facility remaining out of a total of 89 and seven, respectively. Kindred agreed to sell off that entire portfolio for about $700 million back in June.


Splitting remaining assets

The deal separates Kindred’s hospital and rehabilitation business from its Kindred at Home branch, which operates home health care, hospice and community care locations. The home health, hospice and community-based care business will operate as a standalone company, with Humana owning 40% of the operations and TPG and WCAS owning the remaining 60%. Humana will pay approximately $800 million for its stake and have the right to acquire the remaining ownership interest over time.

As a health insurance provider, the move vastly boosts Humana’s home health operations. The insurer already provides care coordination capabilities through its Humana at Home division. Kindred at Home has 609 home health, hospice and non-medical home care sites of service, as well as almost 40,000 caregivers who serve about 130,000 patients a day, with annual revenue of approximately $2.5 billion.

Kindred at Home locations have a 65% overlap with Humana’s individual Medicare Advantage membership, the insurer noted in announcing the transaction.

“The combination of Humana At Home’s pursuit of improving care for seniors living with chronic conditions, in concert with Kindred At Home’s care delivery, will allow these important capabilities to create more effective care in a compassionate way for our members,” said William Fleming, Humana’s president of healthcare services, said in Humana’s release. “We look forward to transforming post-acute care through a value-based approach that will deliver improved clinical outcomes, ultimately lowering medical costs. We believe this work will lead to reduced hospitalizations, reduced emergency room visits, and allow physicians and clinicians to extend their care all the way to the patient’s home.”

The data sharing between Humana and Kindred at home is expected to result in better analytics and predictive modeling, Humana said in the release. This in turn is expected to lead to a platform that improves the company’s capabilities in remote monitoring, telehealth, and digital interactions with members and physicians.

Combined with a collaborative advanced payment model, the technology is projected to give clinicians better information, closing care gaps and improving quality, according to the release.

“Humana is focused on enhancing our capabilities for care in the home to prioritize patient wellness while delivering high-quality care in a low-cost setting,” Humana president and CEO Bruce Broussard stated. “This transaction with Kindred underscores the successful and ongoing execution of our strategy by joining with the most geographically diverse home healthcare provider in the country. We are confident that these new capabilities will help Humana continue to modernize home health and meaningfully improve the member and provider experience. We look forward to completing this strategic transaction with TPG and WCAS.”

Value add

The deal is promising for Humana in terms of valuation and opportunities, Deutsche Bank analysts said in a research note.

“The larger opportunity for accretion stems from cost synergies that Humana can achieve across its medical membership base,” the analysts said. “As a leading provider of Medicare Advantage plans, ownership of home health assets provides Humana a clear opportunity to drive down cost trend, as it can direct seniors to at-home care as a more cost-efficient option relative to care provided at the hospital or another institutional-based care setting.”

Analysts for JPMorgan agreed.

“We see the acquisition of such assets as a logical build-out of a targeted healthcare provider delivery strategy,” they said in a published note on the deal.

Upon completion of the deal, Breier will serve as CEO of the specialty hospital company, Kindred Healthcare, while David Causby, Kindred’s exectuive vice president and president of Kindred at Home, will serve as CEO of Kindred at Home.

Chicago-based real estate investment trust (REIT) Ventas Inc. (NYSE: VTR), which owns 30 long-term acute care hospitals and inpatient rehab facilities operated by Kindred, also supports the deal.

“We look forward to continuing our partnership with Kindred and working with the new owners as they drive above-market growth and serve increasing numbers of medically-complex patients,” Ventas CEO Debra Cafaro stated in a press release.

The deal is expected to close in the summer of 2018, pending certain closing conditions and agreements among stakeholders.

Humana expects the transaction to be slightly accretive to earnings per diluted common share in 2019 and beyond.
Morgan Stanley & Co. LLC is serving as lead financial advisor to Humana, TPG Capital and WCAS.

JPMorgan Chase is also acting as lead financial advisor to TPG Capital and WCAS. TripleTree, LLC is acting as strategic and financial advisor to Humana, while Evercore provided a fairness opinion to Humana’s board.

Fried, Frank, Harris, Shriver & Jacobson LLP is acting as legal advisor to Humana.

Kindred’s share price rose above $9 per share as of end of day trading on Tuesday, while Humana’s stock saw a slight drop on Tuesday.

Written by Amy Baxter

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