Kindred asks stockholders to approve Humana merger

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In a proxy statement filed with the U.S. Securities and Exchange Commission, Louisville, Kentucky-based Kindred Healthcare urged its shareholders to follow the recommendation of Kindred board members and vote yes on the proposed $4.1 billion sale of the company to insurer Humana and two private equity firms.

Under the proposed merger agreement, Kindred would be split in two: its 77 acute care hospitals and 19 rehabilitation centers would go to the private equity firms TPG and Welsh, Carson, Anderson & Stowe. Kindred’s home health and hospice care business would be rolled into a separate company, with 60 percent being controlled by the two firms and Humana paying $800 million for a 40 percent stake. Humana could be required to buy out the firms’ share of the business after three years.

Stockholders, who would receive $9 in cash for every Kindred share, will be able to vote on the deal at a special meeting, though the filing doesn’t specify when this will take place. The board of Kindred has already approved the merger agreement and recommended shareholders vote in favor of both adopting the agreement and offering compensation to Kindred executives.

“The board concluded that the merger consideration enabled Kindred stockholders to realize a substantial portion of Kindred’s potential future value without the significant market, reimbursement, healthcare regulatory and execution risks associated with continued independence, and the option of remaining an independent standalone public company was not reasonably likely to create value for Kindred stockholders in excess of the merger consideration,” the proxy statement said.

One of the company’s major shareholders, Brigade Capital Management, has already come out against the deal, saying the $9-per-share sale price is “grossly inadequate” and driven by “near-term set backs” like proposed reimbursement changes which CMS didn’t finalize and financial impacts from natural disasters in 2017.

“The company has ample liquidity, no near-term debt maturities and is expected to generate around $175 million of core free cash flow in 2018,” wrote Brigade founder Donald Morgan III. “There is no urgency to sell the company, and conducting a sale process utilizing Kindred’s significantly distorted trailing 12-month performance seems particularly misguided.”

If the deal isn’t completed by Aug. 17, 2018, Kindred, the private equity firms and Humana would be able to terminate the merger by mutual written consent.