Story updated with comment from Gentiva at 5:30 p.m. ET
Kindred Healthcare's unsolicited takeover offer for Gentiva Health Services is the first proposal to come out of a healthcare sector that observers believe has been ripe for consolidation.
Post-acute-care operators have struggled over the past several quarters to meet earnings forecasts amid reimbursement cuts. Home health operators in particular are currently in the first year of 14% rate rebasing that will be phased in over four years. The industry also has faced heavy regulatory scrutiny as the Justice Department aims to cut down on fraud and abuse.
Kindred's $1.6 billion proposal represents a 64% premium to Gentiva's closing share price Wednesday. The $14 a share offer is split between cash and stock, but the Louisville, Ky.-based company said it is willing to negotiate an all-cash transaction. Gentiva's board had so far rebuffed Kindred's advances, according to correspondence between the companies that Kindred released Thursday when it took its offer to the company's shareholders.
Gentiva confirmed in a statement late Thursday that its board of directors had rejected the offer. The company has retained the law firm Greenberg Traurig and financial advisers Barclays Capital and Edge Healthcare Partners to assist in the review. Kindred's offer “significantly undervalues Gentiva and its attractive prospects for growth and value creation,” the statement said.