Major Stakeholder Comes Out Against Kindred and Humana Deal

Ryan Black
DECEMBER 27, 2017


A company that holds a 5.8% stake in Kindred Healthcare has come out in opposition of the company’s proposed purchase by insurance giant Humana.

In a letter to the Securities and Exchange Commission today, Brigade Capital representatives wrote that, “From the perspective of maximizing shareholder value, this is a terrible time to sell the company.”

The proposed deal would pay shareholders $9.00 per stock, a 27% markup on the company’s 90-day volume-weighted average price. Still, Brigade thinks that number is too low: Its current stock price, they wrote, is the result of near-term setbacks that render the price “highly misleading.”

The purchase, announced last week, would see Humana and 2 private equity firms buy and divide Kindred Healthcare into a pair of smaller companies. A new brand called Kindred at Home would include the company’s home health, hospice, and community care businesses. Humana would own 40% of that company, with considerations to eventually buy the remainder off of fellow investors TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS).

The rest of Kindred Healthcare, including its long-term acute care hospitals and rehabilitation services, would remain under the original name as a separate entity.

Natural disasters played a part in scuttling the company’s 2017 business, Brigade argues, and the company expects the fourth quarter its strongest of the year. “There is no urgency to sell the company,” the letter says, and the deal “does not come close to maximizing shareholder value, is not in the best interests of shareholders, and should not be approved by Kindred’s owners.”

The letter points out that some of the company’s recent actions had freed up capital and jolted its stock. In October, the company announced restructuring that Brigade said had led to a jump from about $6.00 per share to over $8.00. In September, the company divested from the skilled nursing market, selling its remaining locations to BlueMountain Capital, LLC for $700 million.

Another factor contributing to Brigade’s optimism is the Centers for Medicare and Medicaid Services’ abandonment of proposed bundled payment programs that may have hurt Kindred’s reimbursement. They said those proposed rules were a “major near-term potential threat.”

“In light of the foregoing, the $9.00 per share valuation underlying the proposed transaction is fundamentally inconsistent with management’s own statements regarding the Company’s positive outlook,” the letter concludes. “We believe this position is widely held by investors.”

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