Hospital operator Kindred Healthcare Inc. went hostile with its $533 million offer for Gentiva Health Services Inc. on Thursday, after Gentiva rejected the bid saying it expected to generate more value as a standalone provider of home healthcare services.
Kindred said Gentiva was unwilling to discuss a potential deal to create a company with adjusted annual revenue of about $7.2 billion that could offer a full spectrum of services to an aging U.S. population.
Analysts said the offer was a good "exit strategy" for Gentiva's shareholders as the company's stock has languished below Kindred's offer of $14 per share since August 2011, despite several large acquisitions to boost growth.
"We view (the rejection) as a meaningful error on (Gentiva) management's part, as our long experience tells us that it would take management a very long time to create that kind of increase in value," CRT Research analyst Sheryl Skolnick wrote in a note.
Kindred said it was ready to raise its bid, currently equally split in cash and stock, to an all-cash offer.
Kindred said 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."
Gentiva's stock jumped as much as 70 percent in morning trading. Kindred's shares rose 7 percent. The stocks of home healthcare companies Amedisys Inc. and LHC Group also rose.
Kindred's offer is the latest in a string of healthcare deals and unsolicited offers that have been announced over the past few weeks, already making 2014 the busiest year for acquisitions in the sector.
Gentiva, whose shares have fallen 31 percent so far this year, has been struggling with federal budget cuts and changes in Medicare reimbursement rates due to President Barack Obama's healthcare law.
The company bought Odyssey HealthCare Inc. for about $1 billion in 2010 and last year paid $409 million for the home health, hospice and community care businesses of Harden Healthcare Services.
"For Gentiva shareholders, the transaction would provide a significant and immediate return and enhanced financial strength of the combined company, as Gentiva's balance sheet is stretched to the limits and hospice regulatory pressure could add further strain longer-term," Raymond James analysts wrote in a note.
The brokerage upgraded Gentiva's stock to "market perform" from "underperform," saying the stock's price would be more linked to a potential deal over the short term.
Including debt, Kindred's offer was valued at $1.6 billion.
Gentiva's shares were trading up 60 percent at $13.75, while Kindred's shares were up 5 percent at $23.07 in morning trading.
Citi was acting as financial adviser to Kindred and Cleary Gottlieb Steen & Hamilton LLP acted as its legal adviser.
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