Gentiva Health Services Inc GTIV.O will buy the home health, hospice and community care businesses of privately held Harden Healthcare Services for about $409 million to expand its patient base in the face of continued Medicare reimbursement cuts.
Gentiva shares rose as much as 11 percent on the Nasdaq.
The deal will help expand Gentiva's services to so-called dual-eligibles - people who qualify for both the elderly and disabled-focused Medicare insurance plan and for Medicaid, which covers the poor.
Dual-eligible patients include those who have trouble carrying out daily activities such as bathing or dressing. They are reimbursed first by Medicare and then by Medicaid.
CRT Capital analyst Sheryl Skolnick said the dual-eligible population would be a richer source of reimbursement for Gentiva than its home health or hospice businesses, which are mostly reimbursed by Medicare.
"Typically, Medicaid will pay for personal care in some limited way, but for the duals, they pay for it a lot," she said.
Gentiva also said that the deal will help reduce its dependence on revenue from Medicare, which contributed about 86 percent of the company's revenue in 2012.
The home healthcare provider has been struggling with the budget cuts and changes in Medicare reimbursement rates brought on by President Barack Obama's healthcare law.
Given that these rate pressures are likely to continue, synergies from the deal could help offset future cuts, Gentiva Chief Executive Tony Strange said.
Gentiva said it expects the deal to add to adjusted earnings per share within 12 months of its close in the fourth quarter.
The combined company is expected to record revenue of between $2.1 billion and $2.2 billion in 2014. Half of that is expected to come from home health, 41 percent from hospice and 10 percent from community care, which includes dual-eligible patients.
Gentiva will pay Harden shareholders $355 million in cash and the rest in common stock.
Harden's shareholders will retain the company's long-term care business, which includes 49 skilled nursing and assisted living facilities in Texas.
Gentiva will fund the cash portion of the deal through available cash and a new credit facility.
It expects to obtain a term loan facility of $855 million to finance the deal and refinance its existing term loans.
Barclays and BofA Merrill Lynch provided committed financing for the deal, Gentiva said.
Edge Healthcare Partners LLC was the financial adviser to Gentiva, while Harden was advised by Barclays.
Greenberg Traurig LLP was legal counsel to Gentiva, while Alston & Bird LLP was Harden's legal adviser.
Gentiva shares were up 10 percent at $12.22 in early-afternoon trading.
(Reporting By Vrinda Manocha in Bangalore; Editing by Maju Samuel)