Even With SNF Exit, Kindred Cautious on Future of Long-Term Care

Kindred Healthcare, Inc. (NYSE: KND) elected to exit the skilled nursing space last year due to industry headwinds, but the provider is still cautioning that the wind might not necessarily be at its back going forward.

In a Monday presentation to investors, the Louisville, Ky.-based company cited low reimbursements, labor cost pressures, and the potential for weaker payer mixes amid a shift to Medicare Advantage as key operating risks for players in the long-term care space.

Those worries played into Kindred’s December decision to pursue an acquisition by health insurance giant Humana Inc. (NYSE: HUM) and a pair of private equity companies. By agreeing to the acquisition and potentially entering a more diversified business, Kindred officials argue in the presentation, shareholders will be protected from those ongoing headwinds and other negative factors.


“Now is the right time to enter into a transaction to maximize stockholder value,” one slide reads, with Kindred asserting that the deal will temper volatility related to reimbursement pressures and the company’s significant leverage.

Kindred compiled a list of analyst commentary on its third quarter earnings release, with Bank of America Merrill Lynch expressing concerns about the company’s leverage even after it announced the $700 million SNF sell-off last summer.

“We remain concerned about the risk of additional reimbursement pressure with post-acute providers most at risk,” Bank of America’s analyst wrote.


The team at Mizuho Securities USA agreed.

“There still isn’t a clear strategy here other than survival,” Mizuho noted in its decision to award Kindred a “Neutral” rating. “While that’s laudable, in our view, it’s not the basis of a Buy rating.”

Kindred contrasted those reviews with analyst feedback on the merger, which painted the deal as the best option available. Analysts for J.P. Morgan and RBC, for instance, said they didn’t expect to see a higher bid than the consortium’s offer of $9 per share, while Mizuho concluded that the split structure of the deal — going forward, Kindred’s hospital and rehab business will operate separately from its Kindred at Home home health care branch — was a necessity.

“Splitting the company makes sense to us, especially as KND in our view never really was able to articulate a reason to stay together … after bundling took its toll on SNFs,” Mizuho noted.

SNF exit a spark

Kindred provided a timeline of events that seemed to indicate the SNF departure as a major milestone in its Humana merger. The company initially announced its plan to work with landlord Ventas Inc. (NYSE: VTR) to exit the SNF industry in November 2016, and just two weeks later received its first proposal from a financial sponsor.

The company’s board considered several options before settling on the acquisition plan, Kindred said in the presentation, including a sale of the entire company, the spin-off of one or multiple business lines, or a continuation of the status quo as a standalone entity.

In the end, Kindred “concluded that the transaction with the Consortium delivers superior value and certainty to all over evaluated opportunities.”

The company also filed its preliminary proxy statement with the Securities and Exchange Commission, outlining the deal for shareholders.

Kindred’s stock remained flat in Monday’s trading, closing at $9.05 per share.

Written by Alex Spanko

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