Why Gentiva Health Services Inc. Shares Catapulted Higher

Kindred Healthcare goes courting, but Gentiva slams the door. Is this the last we're going to hear of this potential home health and hospice deal?

May 15, 2014 at 2:03PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Gentiva Health Services (NASDAQ:GTIV), a provider of home health, hospice, and community care, skyrocketed higher by as much as 70% after rival Kindred Healthcare (NYSE:KND) made an unsolicited bid for the company.

So what: Under the terms of the proposed deal, Kindred was willing to pay $514 million, or $1.6 billion inclusive of debt, for Gentiva Health Services. The deal would have been completed using a combination of $7 per share in cash and $7 per share in Kindred stock, and represented a roughly 64% premium to Gentiva's close yesterday. Gentiva has already rejected the offer and noted it has no intentions of discussing an offer at this time, though Kindred may consider a hostile takeover and take its bid directly to shareholders.

Now what: Now we have to wait to see what Kindred Healthcare does next. My guess is that it will indeed take its offer to Gentiva's shareholders since Gentiva's board of directors apparently wants nothing to do with Kindred. The combination of the two companies, however, would make a lot of sense, at least to me. In an environment where Medicare reimbursements are expected to fall annually as Obamacare alters the health-care landscape, Kindred and Gentiva getting together should generate significant cost savings by the third year, and would like be earnings accretive almost immediately. Not to mention it would serve roughly 127,000 patients per day in 47 states per Kindred's figures, giving the company solid geographic diversity. I doubt this is the last we've heard of this bid, but I also would suggest investors not chase Gentiva shares any higher as a competing bid, or even higher bid from Kindred, seems unlikely with approximately $1.1 billion in net debt.

Gentiva may have soared today, but it'll likely have a tough time keeping pace with this top stock over the long run
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Jun 12, 2015 at 5:01PM

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