Combination Will Help Transform the American
Healthcare Delivery System by Providing Patient-Centered,
Coordinated Care at Home and Across the Continuum of Care
Combined Company Will Have Pro Forma Annual
Revenues of Approximately $7.1 Billion1 and Operating
Income of $1.0 Billion1
Transaction Expected to be Immediately and
Significantly Accretive to Kindred Earnings and Cash
Flows2, with More Than $70 Million of Expected
Synergies, Accelerating Kindred’s Growth and Creating Significant
Value for the Shareholders of Both Companies
Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND)
and Gentiva Health Services, Inc. (“Gentiva”) (NASDAQ:GTIV) today
announced that the companies have entered into a definitive merger
agreement under which Kindred will acquire all of the outstanding
shares of Gentiva common stock for $19.50 per share in a
combination of cash and stock. The agreement was unanimously
approved by the boards of directors of both companies.
Under the terms of the agreement, Gentiva shareholders will
receive $14.50 per share in cash and $5.00 of Kindred common stock
(which equates to 0.257 shares of Kindred common stock based upon
an agreed upon fixed exchange ratio). The transaction is valued at
$1.8 billion, including the assumption of net debt. The companies
expect the closing of the transaction to occur in the first quarter
of 2015.
The combination of Kindred and Gentiva will further enhance
Kindred’s industry leading position as the Nation’s premier
post-acute and rehabilitation services provider and make Kindred at
Home the largest and most geographically diversified Home Health
and Hospice organization in the United States. The combined company
will:
- Serve more than one million patients
per year;
- Operate in 47 states;
- Employ approximately 109,000
individuals, making it the 78th largest private employer and the
4th largest healthcare employer in the United States;
- Be the largest operator of long-term
acute care hospitals and inpatient rehabilitation facilities in the
United States, as well as the Nation’s largest provider of
rehabilitation, home health and hospice services and one of the
leading sub-acute and skilled nursing providers;
- Deliver pro forma annual revenues of
approximately $7.1 billion; and
- Generate pro forma operating income
(EBITDAR), including expected cost synergies, of $1.0 billion.
Strategic Benefits of the Combination
- Positions Kindred to Help Shape the
American Healthcare Delivery System: Through Kindred’s Continue
the Care strategy, the combined company will deliver
patient-centered, coordinated care across the full continuum – from
the hospital to the home. This integrated model is preferred by
consumers as well as payors, including Affordable Care
Organizations and Managed Care Organizations, as it improves
quality, clinical outcomes and patient satisfaction while reducing
costs.
- Builds on Kindred’s Industry
Leadership: The combined company will advance Kindred’s
leadership in integrated post-acute care, including long-term acute
care, rehabilitation services, skilled nursing, home health and
hospice care.
- Enhances Scale to Address Increasing
Demand for Integrated Health Care and Expands Presence in Kindred’s
Integrated Care Markets: The Gentiva footprint overlaps in 20
of 23 of Kindred’s current and targeted Integrated Care Markets,
which are among the top 30 Metropolitan Statistical Areas in the
United States. Kindred expects this will create significant
benefits for patients from improved care transitions and potential
revenue synergies for the Company from referrals across the
combined care delivery platform.
- Greater Employee Opportunity:
This combination creates an even stronger workforce by uniting the
talented employees of Kindred and Gentiva, who share a commitment
to high-quality and compassionate patient care. Kindred and Gentiva
employees will benefit from being part of a stronger, larger
company and the greater career and professional development
opportunities created by the transaction.
Financial Benefits of the Combination
- Significantly Increases Size and
Scale, Diversifies Revenue Mix, and Enhances Revenue and Margin
Growth Profiles: On a pro forma basis, the combined company is
expected to generate annual revenues of approximately $7.1 billion
and EBITDAR, including expected synergies, of$1.0 billion.
Kindred’s revenue and margin growth profiles will also be
significantly enhanced by the combination.
- Immediately and Significantly
Accretive: Kindred expects the acquisition of Gentiva will be
immediately and significantly accretive to earnings and operating
cash flows, exclusive of transaction and integration costs. Kindred
expects the acquisition to be approximately $0.40 to $0.60
accretive to pro forma earnings, and pro forma operating cash flows
of $350 million to $400 million (before capital expenditures,
dividends and changes in working capital)3, both on a run rate
basis, once Gentiva is fully integrated and expected synergies are
fully realized in the second full year following the closing. On
this same basis, following the combined company’s expected annual
maintenance capital expenditures of $120 million to $130 million,
Kindred expects pro forma cash flows (before growth capital
expenditures, dividends and changes in working capital) of $230
million to $270 million.
- Substantial Cost and Revenue
Synergies: Kindred has identified approximately $70 million of
annual cost and operating synergies and expects to achieve the full
run rate within two years of closing, of which approximately $35
million is expected to be achieved in the first year following the
closing. Kindred expects the majority of cost synergies to be
achieved through combining information technology functions,
merging supply chains and eliminating redundant public company
expenses. In addition, Kindred expects to realize revenue synergies
that will improve patient care transitions and choice, and drive
volume growth as a result of cross-selling across the
combined service platform. Kindred expects annual run rate revenue
synergies of more than $60 million over time, with approximately
$20 million to $30 million achievable in the first full year
following the closing.
- Enhanced Capital Structure, Strong
Cash Flow Profile, Commitment to Deleveraging and Maintaining
Moderate Leverage Profile: Kindred will maintain a strong
balance sheet with significant cash flow and reduced capital
expenditures and rent burden, giving it the ability to continue
paying a meaningful cash dividend while reducing debt. Kindred
expects pro forma adjusted net leverage4 will be approximately
5.5x5 Adjusted Debt to EBITDAR at closing, and to reduce its
outstanding indebtedness to below 5.0x6 Adjusted Debt to EBITDAR by
the end of the second full year following closing. Kindred
reiterates its commitment to a steady-state target leverage profile
of 4.5x to 5.0x Adjusted Debt to EBITDAR.
Management Commentary
Paul J. Diaz, Chief Executive Officer of Kindred, said, “Over
the last eight weeks, we undertook a robust due diligence process
and worked closely and constructively with our counterparts at
Gentiva to better understand their operations, financial results
and outlook. This process confirmed the compelling strategic
rationale and industrial logic of this combination, as well as our
belief that this transaction is in the best interests of both
companies and our respective shareholders, patients, employees and
business partners. This significantly accretive transaction will
generate strong operating cash flows that will allow Kindred to
quickly delever and support future growth and return of capital to
shareholders. We look forward to bringing our two companies
together to advance our strategy, mission and shared values.”
Rodney D. Windley, Executive Chairman of the Board of Gentiva,
said, “This merger represents a successful conclusion to a process
in which, from the beginning, we have focused on maximizing value
for Gentiva’s shareholders consistent with our Board’s
responsibilities while ensuring the future success of the company.
The cash and equity structure of the transaction, which represents
a 128% premium to Gentiva shares since Kindred’s offer became
public, provides Gentiva shareholders with immediate value and the
opportunity to participate in the potential growth and value
creation of the combined company by virtue of their continued
investment in Kindred stock. On behalf of our Board and management
team, I would like to express my deep appreciation to our employees
across the country for their dedication and commitment to our
patients and the families that we serve each and every day.”
Benjamin A. Breier, President and Chief Operating Officer of the
Company, said, “With Gentiva, we will expand the breadth of our
offerings and our geographic footprint and enhance our presence in
Kindred’s Integrated Care Markets to drive more efficient and
cost-effective coordinated care across more communities. This
combination strengthens our ability to serve patients across the
full continuum of care – from the hospital to the home. Together we
will create the industry leading provider of home based
patient-centered care, solidifying our position at the forefront of
the care delivery model that is preferred by patients and payors.
As a combined company, we will continue to grow and help shape the
American Healthcare Delivery System.”
Mr. Breier added, “The combined company has tremendous growth
potential and will have increased financial flexibility to invest
in clinical programs, information technology and infrastructure to
advance our mission of promoting healing, providing hope,
preserving dignity and producing value for every constituent we
serve. Importantly, both companies’ employees share a similar focus
on patient service, and we anticipate a seamless integration. Upon
closing, the combined company will embrace the best practices of
both organizations, which we expect will create exciting
professional development and career opportunities for many
employees. We look forward to welcoming the Gentiva team to the
Kindred family and to making even greater strides in clinical
innovation and excellence.”
Tony Strange, Chief Executive Officer of Gentiva, said, “By
combining Gentiva and Kindred, we have solidified the importance of
home care in the post-acute care continuum of tomorrow. Kindred and
Gentiva will create the largest provider of Integrated Care in
America. The combined company has tremendous growth potential and
will give Gentiva employees greater opportunities in the future. We
look forward to working together with Kindred to ensure a seamless
transition.”
Financing Details
Kindred has obtained committed financing from Citi and J.P.
Morgan in connection with the pending transaction. Subject to
market and other conditions, the Company expects to finance the
acquisition of Gentiva and associated costs through the issuance of
$200 million to $300 million of common stock and mandatory
convertible equity securities and $1.3 billion to $1.4 billion of
unsecured notes prior to the closing of the acquisition. The
Company expects to fund the remaining amounts through its existing
line of credit.
Following completion of the transaction, Kindred expects to have
approximately 85 million fully diluted shares outstanding,
comprised primarily of approximately 64 million shares outstanding
today, approximately 10 million shares to be issued to Gentiva as
part of the transaction consideration, and approximately nine
million to 12 million shares associated with the expected offering
of common stock and mandatory convertible equity securities.
Operations and Integration
The combined company will continue to be headquartered in
Louisville, Kentucky and will maintain a significant, regional
presence in Atlanta, Georgia. The combined home health and hospice
businesses will operate within the Kindred at Home division.
Timing and Approvals
The Gentiva acquisition is subject to certain conditions,
including the approval by the stockholders of Gentiva. Kindred and
Gentiva have already received clearance for the transaction under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The companies expect to complete the transaction in the first
quarter of 2015.
Advisors
Citi and Guggenheim Securities are acting as financial advisors
to Kindred. Cleary Gottlieb Steen & Hamilton LLP is acting as
legal advisor and Gibson, Dunn & Crutcher LLP is serving as
special counsel to Kindred.
Barclays and Edge Healthcare Partners are serving as financial
advisors to Gentiva and Greenberg Traurig, LLP is serving as
Gentiva’s legal advisor.
Conference Call and Additional Presentation Materials
The Kindred management team will be discussing the pending
transaction with analysts and investors on a conference call today
at 9:00 a.m. (Eastern Time). Interested parties can participate in
the conference by dialing (866) 610-1072 (U.S.) or (973) 935-2840
(International), conference code 14669615, five to 10 minutes prior
to the start of the call. A live webcast will also be accessible on
www.kindredhealthcare.com. The conference call webcast will feature
accompanying slides, which can be accessed through the Investor
Relations section of Kindred’s website.
A replay of the conference call will be available for the next
30 days and can be accessed by dialing (800) 585-8367 (U.S.) or
(404) 537-3406 (International), conference code 14669615. The
replay will also be available online at
www.kindredhealthcare.com.
About Kindred Healthcare
Kindred Healthcare, Inc., a top-150 private employer in the
United States, is a FORTUNE 500 healthcare services company based
in Louisville, Kentucky with annual revenues of $5 billion and
approximately 63,000 employees in 47 states. At June 30, 2014,
Kindred through its subsidiaries provided healthcare services in
2,353 locations, including 97 transitional care hospitals, five
inpatient rehabilitation hospitals, 98 nursing centers, 21
sub-acute units, 153 Kindred at Home hospice, home health and
non-medical home care locations, 104 inpatient rehabilitation units
(hospital-based) and a contract rehabilitation services business,
RehabCare, which served 1,875 non-affiliated facilities. Ranked as
one of Fortune magazine’s Most Admired Healthcare Companies for six
years in a row, Kindred’s mission is to promote healing, provide
hope, preserve dignity and produce value for each patient,
resident, family member, customer, employee and shareholder we
serve. For more information, go to www.kindredhealthcare.com. You
can also follow us on Twitter and Facebook.
About Gentiva Health Services, Inc.
Gentiva Health Services, Inc. is one of the nation’s largest
providers of home health, hospice and community care services,
delivering innovative, high quality care to patients across the
United States. Gentiva is a single source for skilled nursing;
physical, occupational, speech and neurorehabilitation services;
hospice services; social work; nutrition; disease management
education; help with daily living activities; and other therapies
and services.
Forward-Looking Statements
This press release includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements include, but are
not limited to, statements regarding the Company’s proposed
business combination transaction with Gentiva (including financing
of the proposed transaction and the benefits, results, effects and
timing of a transaction), all statements regarding the Company’s
(and the Company’s and Gentiva’s combined) expected future
financial position, results of operations, cash flows, dividends,
financing plans, business strategy, budgets, capital expenditures,
competitive positions, growth opportunities, plans and objectives
of management, and statements containing the words such as
“anticipate,” “approximate,” “believe,” “plan,” “estimate,”
“expect,” “project,” “could,” “would,” “should,” “will,” “intend,”
“may,” “potential,” “upside,” and other similar expressions.
Statements in this press release concerning the business outlook or
future economic performance, anticipated profitability, revenues,
expenses, dividends or other financial items, and product or
services line growth of the Company (and the combined businesses of
the Company and Gentiva), together with other statements that are
not historical facts, are forward-looking statements that are
estimates reflecting the best judgment of the Company based upon
currently available information.
Such forward-looking statements are inherently uncertain, and
stockholders and other potential investors must recognize that
actual results may differ materially from the Company’s
expectations as a result of a variety of factors, including,
without limitation, those discussed below. Such forward-looking
statements are based upon management’s current expectations and
include known and unknown risks, uncertainties and other factors,
many of which the Company is unable to predict or control, that may
cause the Company’s actual results, performance or plans with
respect to Gentiva to differ materially from any future results,
performance or plans expressed or implied by such forward-looking
statements. These statements involve risks, uncertainties and other
factors discussed below and detailed from time to time in the
Company’s filings with the Securities and Exchange Commission (the
“SEC”).
Risks and uncertainties related to the proposed merger include,
but are not limited to, the risk that Gentiva’s stockholders do not
approve the merger, potential adverse reactions or changes to
business relationships resulting from the announcement or
completion of the merger, uncertainties as to the timing of the
merger, adverse effects on the Company’s stock price resulting from
the announcement or completion of the merger, competitive responses
to the announcement or completion of the merger, the risk that
healthcare regulatory, licensure or other approvals and financing
required for the consummation of the merger are not obtained or are
obtained subject to terms and conditions that are not anticipated,
costs and difficulties related to the integration of Gentiva’s
businesses and operations with the Company’s businesses and
operations, the inability to obtain, or delays in obtaining, cost
savings and synergies from the merger, uncertainties as to whether
the completion of the merger or any transaction will have the
accretive effect on the Company’s earnings or cash flows that it
expects, unexpected costs, liabilities, charges or expenses
resulting from the merger, litigation relating to the merger, the
inability to retain key personnel, and any changes in general
economic and/or industry-specific conditions.
In addition to the factors set forth above, other factors that
may affect the Company’s plans, results or stock price are set
forth in the Company’s Annual Report on Form 10-K and in its
reports on Forms 10-Q and 8-K.
Many of these factors are beyond the Company’s control. The
Company cautions investors that any forward-looking statements made
by the Company are not guarantees of future performance. The
Company disclaims any obligation to update any such factors or to
announce publicly the results of any revisions to any of the
forward-looking statements to reflect future events or
developments.
Additional Information
This press release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This communication may be deemed to be
solicitation material in respect of the proposed merger between the
Company and Gentiva. In connection with the proposed merger,
Gentiva and the Company intend to file a registration statement on
Form S-4, containing a proxy statement/prospectus, with the SEC.
SHAREHOLDERS OF GENTIVA ARE URGED TO READ ALL RELEVANT DOCUMENTS
FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS,
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
MERGER. Investors and security holders will be able to obtain
copies of the proxy statement/prospectus as well as other filings
containing information about the Company and Gentiva, without
charge, at the SEC’s website, www.sec.gov. Those documents, when
filed, as well as the Company’s other public filings with the SEC,
may be obtained without charge at the Company’s website at
www.kindredhealthcare.com.
Participants in Solicitation
The Company and its directors and executive officers, and
Gentiva and its directors and executive officers, may be deemed to
be participants in the solicitation of proxies from the holders of
Gentiva common stock in respect of the proposed merger. Information
about the directors and executive officers of the Company is set
forth in the proxy statement for the Company’s 2014 Annual Meeting
of Shareholders, which was filed with the SEC on April 3, 2014.
Information about the directors and executive officers of Gentiva
is set forth in the proxy statement for Gentiva’s 2014 Annual
Meeting of Shareholders, which was filed with the SEC on March 25,
2014. Investors may obtain additional information regarding the
interest of such participants by reading the proxy
statement/prospectus regarding the proposed merger when it becomes
available.
Reconciliation of Non-GAAP Measures
This presentation includes a financial measure referred to as
operating income, or earnings before interest, income taxes,
depreciation, amortization and rent ("EBITDAR"). Kindred's
management uses EBITDAR as a meaningful measure of operational
performance in addition to other measures. Kindred uses EBITDAR to
assess the relative performance of its operating divisions as well
as the employees that operate these businesses. In addition,
Kindred believes this measurement is important because securities
analysts and investors use this measurement to compare Kindred's
performance to other companies in the healthcare industry. Kindred
believes that income from continuing operations is the most
comparable generally accepted accounting principle ("GAAP")
measure. Readers of Kindred's financial information should consider
income from continuing operations as an important measure of
Kindred's financial performance because it provides the most
complete measure of its performance. EBITDAR should be considered
in addition to, not as a substitute for, or superior to, financial
measures based upon GAAP as an indicator of operating performance.
A reconciliation of Kindred's August 6, 2014 guidance to income
from continuing operations is below. The pro forma EBITDAR total of
$1 billion included in this press release includes a 2014 EBITDAR
estimate of $232 million for Gentiva, which is based upon Gentiva's
2014 current average analyst consensus estimates. In addition, pro
forma EBITDAR includes full run rate expected cost synergies of $70
million from the transaction.
2014 Earnings Guidance (a) As of
August 6, 2014 ($ in millions)
Low High
Revenues $ 5,100 $ 5,100 Operating
income (EBITDAR) $ 707 $ 724 Rent 330 330 Depreciation and
amortization 161 161 Interest, net 98 98
Income from continuing operations before income taxes 118
135 Provision for income taxes 45 52
Income from continuing operations
73 83 Earnings attributable to noncontrolling interests (15
) (15 )
Income from continuing operations
attributable to Kindred
58 68 Allocation to participating unvested restricted stockholders
(2 ) (2 )
Available to common stockholders
$ 56 $ 66 Earnings per diluted share $
0.96 $ 1.14 Shares used in computing earnings per diluted
share 58.3 58.3
____________________
(a) The earnings guidance excludes the effect of
reimbursement changes, debt refinancing costs, severance,
retirement, retention and restructuring costs, litigation costs,
transaction costs, any further acquisitions or divestitures, any
impairment charges, and any repurchases of common stock.
1 Pro forma revenues and Operating Income (EBITDAR) were
computed by combining the mid point of 2014 guidance for Kindred as
provided on August 6, 2014 (see enclosed reconciliation) and 2014
current average analyst consensus estimates for Gentiva. In
addition, pro forma EBITDAR includes full run rate expected cost
synergies of $70 million, and estimated annualized rent expense of
$41 million based on Gentiva’s second quarter of 2014. EBITDAR
is defined as earnings before interest, income taxes, depreciation,
amortization and rent.2 Exclusive of transaction and integration
costs.3 Based upon 2014 net income guidance for Kindred as provided
on August 6, 2014 and 2014 current average analyst consensus
estimates for Gentiva and adding back depreciation and amortization
per Kindred’s 2014 guidance and adding back annualized six months
ended June 30, 2014 depreciation and amortization for Gentiva and
annualized stock-based compensation and deferred financing cost
amortization for both Kindred and Gentiva. In addition, expected
full run rate estimated cost synergies, net of income taxes, of $42
million ($70 million full run rate annual costs and operating
synergies less income taxes of $28 million) are included.4 Pro
forma adjusted net leverage is computed by dividing a numerator
comprised of estimated long-term debt at closing plus pro forma
annual rent expense multiplied by six, less unrestricted cash, by a
denominator comprised of pro forma EBITDAR. Pro forma annual rent
expense was computed by combining 2014 guidance for Kindred as
provided on August 6, 2014 and estimated annualized rent expense of
$41 million based on Gentiva’s second quarter of 2014.5 Includes
$35 million of cost synergies expected to be realized in the first
full year following closing.6 Includes $70 million of annual run
rate cost synergies expected to be realized in the second full year
following closing.
For KindredMediaKindred Healthcare, Inc.Susan
Moss, 502-596-7296Senior Vice President, Marketing and
CommunicationsorJoele Frank, Wilkinson Brimmer KatcherAndrew
Siegel, 212-355-4449Nick Lamplough, 212-355-4449orInvestors and
AnalystsKindred Healthcare, Inc.Stephen Farber,
502-596-2525Executive Vice President, Chief Financial
OfficerorFor GentivaMediaKekst and CompanyAndrea
Calise, 212-521-4845Ross Lovern, 212-521-4876orInvestors and
AnalystsGentiva Health Services, Inc.Eric Slusser,
770-951-6101Executive Vice President, Chief Financial
Officereric.slusser@gentiva.com
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