Hospital operator Kindred Healthcare Inc (KND.N) went hostile with a $533 million offer for Gentiva Health Services Inc GTIV.O, after the home healthcare services provider rejected the bid saying it could generate more value as a standalone company.
Kindred said it made its $14-per-share offer public on Thursday since Gentiva was unwilling to discuss a potential deal to create a company with adjusted annual revenue of about $7.2 billion offering a full spectrum of services to an aging U.S. population.
While it was not clear when or at what price Kindred first made an offer, the company on May 5 raised its bid to $14 per share, which Gentiva rejected on May 13, according to letters between the companies made public by Kindred.
Analysts said the offer was a good "exit strategy" for Gentiva's shareholders as the stock has languished below Kindred's offer price since August 2011, despite acquisitions to boost growth.
"We view (the rejection) as a meaningful error on (Gentiva) management's part, as our long experience tells us that it would take management a very long time to create that kind of increase in value," CRT Research analyst Sheryl Skolnick wrote in a note.
Kindred said it was ready to raise its bid, currently equally split between cash and stock, to an all-cash offer.
Kindred said many Gentiva shareholders, and mainly the more than 20 percent who also held Kindred's stock, would support the deal.
Gentiva did not return emails seeking comment.
Gentiva's shares were trading up 61 percent at $13.75 in midday trading. They jumped as much as 90 percent earlier. Kindred's shares were up 6.7 percent at $23.40, while shares of home healthcare companies Amedisys Inc (AMED.O) and LHC Group (LHCG.O) also rose.
Before Thursday's gains, Gentiva's shares traded at 9.3 times estimated forward earnings, a steep discount to the valuation of 17.9 times for the healthcare services sector and 18.5 times for the broader healthcare sector.
Kindred's offer - worth $1.6 billion including debt - is the latest in a string of healthcare deals and unsolicited offers announced over the past few weeks, already making 2014 the busiest year for acquisitions in the sector.
Gentiva itself bought Odyssey HealthCare Inc for $1 billion in 2010. The company, struggling with federal budget cuts and changes in Medicare reimbursement rates, last year paid $409 million for Harden Healthcare Services' home healthcare businesses.
Raymond James' analysts favored Kindred's offer, saying a combined company would strengthen Gentiva's balance sheet, which was "stretched to the limits" with the potential of further strain due to regulatory pressures.
The brokerage upgraded Gentiva's stock to "market perform" from "underperform", saying the stock's price over the short term would be linked to a potential deal.
Citi advised Kindred and Cleary Gottlieb Steen & Hamilton LLP was its legal adviser.
(Editing by Savio D'Souza)