Kindred has made two attempts at purchasing Gentiva but was rejected by Gentiva’s board of directors. Now Kindred is completely ignoring Gentiva’s board of directors and has launched a hostile takeover.
Kindred is one of the country’s largest and most diversified healthcare providers. Operating in 47 states, Kindred owns and operates hospitals, rehab centers, nursing homes (SNFs), home health and hospice agencies. As publicly traded company, Kindred (symbol KND), believes that acquiring Gentiva (symbol GTIV) would be a natural extension of services already offered.
It’s important to understand why Kindred is acquiring Gentiva. Most of Gentiva’s revenue comes from two segments, home health (52%) and hospice (36%). The remaining portion (12%) of Gentiva’s revenue is generated from community based care such as private duty home care and staffing services. Since Gentiva operates in 40 states with 500 locations, Gentiva would fit well with Kindred who operates in 47 states. Gentiva’s foundation in home health and hospice is an extension of the continuum of care for Kindred’s existing operating model.
Kindred made the first bid for Gentiva in April then again a couple weeks ago on May 5. The deal is valued at $1.6 billion with Kindred offering a 64% premium on Gentiva shares. Kindred’s offer is $14 per share ($7/share in cash and $7/ share in Kindred stock). Gentiva shareholders would be recouping some of their loss as Gentiva’s stock has fell to a low of $7 in the past year, but has been rebounding since the news broke about a possible merger of both companies.
A combined company would serve over 127,000 patients per day in 47 states. This means with the exception of Alaska, Hawaii and South Dakota, this deal hits very close to home for most free-standing, locally owned agencies. There is hope that this deal will not close. As each company is publicly traded, the merger will require regulatory approval and months to finalize.
An interesting and not widely known fact buried deep within financial disclosures is Gentiva’s almost a $1 million investment in CareCentrix Holdings, Inc. CareCentrix is a home health claim and payment administrator for smaller insurance companies throughout the country. Gentiva also holds a note receivable from CareCentrix for $25 million. The purchase of Gentiva would give Kindred greater influence in many home health markets.
So let’s get into this and what it means for you. The map below is from Kindred’s presentation released on Thursday, May 15, 2014 outlining the reasons and benefits why a combined company makes financial and operational sense.
Kindred operates in largely populated areas overlapping many of the locations that Gentiva operates. The real effects of this are not for yet known but we can prepare the potential merger of both companies.
First, you need to continue to solidify and strengthen your relationships with referral sources. Part of this strategy means reaching out to new sources and building a mutually beneficial relationship. A mutually beneficial relationship does not mean circumventing or trying to work around anti-kickback laws. A referral source who proposes to send you referrals or patients for a fee should be distanced from your agency.
Second, you need to think about diversifying your service offerings. If you just offer home health, you need to considering offering private duty home care/staffing services or outpatient rehab. Adding hospice is another option but requires additional licensing, dedicated staff and careful planning. The other two options generate a strong return on investment which allows your agency to be flexible and dynamic in introducing new programs.
Third, expanding the continuum of care you have to offer and being a locally owned company will give you an advantage over national companies. With a local agency, the quality of care is much better and service is much more patient focused. A national company is more focused on Wall Street performance and analysts’ quarterly commentary with recommendations of buy/hold/sell. You on the other hand, only have to report earnings and performance to yourself.
As a locally owned provider, you can make changes much faster and be more dynamic to meet the needs of patients. A mega-company like a proposed Kindred-Gentiva operation, takes months to develop, execute and measure performance. You can have that done in a couple months and then decide which areas need to be focused, polished and fine-tuned for optimal results.
For more information on how to expand your brand, your agency and services offerings into a local dominating force, please email us or give us a call.