Dive Brief:
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Brigade Capital Management hedge fund, a Kindred Healthcare shareholder, opposes the $4.1 billion deal for the home healthcare company by Humana and private equity companies TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS), Modern Healthcare reported.
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In a letter to Kindred President and CEO Benjamin Breier, the shareholder, which has a nearly 6% stake in Kindred, called the $9 per share valuation for stockholders “disappointing and grossly inadequate.”
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The shareholder said Kindred “is positioned for significant stock price appreciation” and that the deal will “short-change existing shareholders.”
Dive Insight:
Kindred Healthcare is a post-acute care giant and operates home and hospital care, rehabilitation services and long-term acute care facilities.
The deal includes separating the home health, hospice and community care businesses and having Humana own 40% of that standalone company. The two private equity companies would own the remaining 60%. However, Humana will have the right to buy the remaining ownership over time. Meanwhile, TPG and WCAS will own Kindred’s long-term acute care hospitals, inpatient rehabilitation facilities and contract rehab services.
The deal would allow Humana to move beyond health insurance, which has become a common theme among payers. Just in recent weeks, CVS Health recently announced it plans to buy Aetna in a $69 billion deal and UnitedHealth Group’s Optum expects to acquire DaVita Medical Group for $4.9 billion.
Humana’s activity is the second major deal involving the payer in the past year. Humana and Aetna attempted a merger, but that fell apart after a federal judge blocked the plan and the companies dropped the idea in early 2017. Humana received $1 billion from Aetna for a breakup fee.
Humana is the second largest Medicare Advantage (MA) payer and only lags behind UnitedHealth Group for MA membership. The two payers combined control nearly half of the MA market.
Humana’s MA footprint was a major reason why the Humana-Aetna deal ended. Now, months later, the Louisville-based payer is looking at the same senior population with its Kindred deal. Growing more in that patient population could give Humana a bigger foothold in the ever-expanding senior healthcare marketplace and possibly lead to streamlined care and reduced costs.
As we open 2018, healthcare merger and acquisition activity remains hot. The long-term care sector was the most active in volume in 2017 and the Kindred deal will continue that trend in 2018.
Looking forward, Mark Nathan, CEO of Zipari, recently told Healthcare Dive that payers may consider acquiring traditional medical groups, retailers and health-related businesses. “Not only does that allow health plans to start branding, but it also aligns with the overarching goal of improving health by aligning the motivations of payers, providers and members,” Nathan said.
Nathan said these kinds of deals could help with branding and improve consumer outreach. “Health plans have been plagued by terrible customer satisfaction scores, yet they need to improve their brands as consumers and employees play a more critical role in selecting and interacting with health plans,” he said.