Amedisys shares opened Monday at a six-month high after the home health and hospice company was rumored to be a takeover target
for Gentiva Health Services
The rumors came to light after Kindred Healthcare
, which is seeking to buy Gentiva, said it would consider pulling its own takeover offer
if the reports are true. A spokesman for Gentiva declined to comment.
Kindred urged Gentiva not to pursue what it called a “value-destroying and highly levered transaction with Amedisys.” In a letter Friday to Gentiva's management, Kindred CEO Paul Diaz
said both Gentiva and Amedisys focus on the same home health and hospice space and therefore the deal would not create any new business opportunities.
On the other hand, he wrote, “a Kindred-Gentiva combination would offer the benefits of vertical integration and position our combined company to provide integrated post-acute care at lower cost to a much broader range of patients.”
Both Gentiva and Amedisys have had trouble integrating deals in the past, he added.
Kindred on June 17 launched a tender offer for Gentiva shares
at $14.50 and is seeking to build a 14.9% stake—the highest it can acquire before running into Gentiva’s poison pill
. However, Gentiva’s shares quickly began trading above the tender offer price and closed as high as $16.05 June 23.
They opened Monday at $15.
“Kindred remains firmly committed to the proposed combination with Gentiva, but we take our responsibilities to our shareholders very seriously,” Diaz wrote. “If Gentiva were to move forward with any other transaction, Kindred would review the outstanding $14.50 cash offer and consider revising or withdrawing it.”
Amedisys has been a rumored takeover target since disclosing in February
that it had removed its longtime CEO and co-founder, William Borne, and was working with a consulting firm on a turnaround plan. The Baton Rouge, La.-based company has continually failed to meet earnings targets as it struggled with volume and reimbursement pressure.
However, Amedisys had some good news for investors Friday, offering a preview
of its second-quarter revenue, which it expects to be in the range of $300 million to $305 million.
Even on the low end, that would represent only a 4% revenue decline year-over-year, compared to the 13.7% drop in net revenue it saw during the second quarter of 2013. It also represents an improvement over the $298.7 million in net revenue it saw last quarter.
Closing care centers and reducing expenses helped improve its gross margins, the company said.
Amedisys shares closed Friday 29.8% higher than the previous day, and opened Monday at $17.61, a price it hasn’t seen since October.
However, at least one analyst raised concerns about the high debt level Gentiva would need to take on in an Amedisys deal as well as the potential for future reimbursement cuts in the hospice segment.
“We are not convinced that pursuing (Amedisys) is the right strategic course for (Gentiva) due to the risk of a potential combination,” wrote Darren Lehrich, an analyst at Deutsche Bank, in a research note.Follow Beth Kutscher on Twitter: @MHbkutscher