Feb 5, 2018

Behind the scenes of the Kindred Healthcare buyout

Humana's office building

Humana showed interest in buying Kindred Healthcare while it was still connected to Aetna merger talks. Luke Sharrett / Bloomberg via Getty Images

Kindred Healthcare, the operator of numerous home health and hospice agencies and rehab hospitals, was holding acquisition talks for roughly a year and a half before it finally accepted the deal proposed by Humana, TPG Capital and Welsh, Carson, Anderson & Stowe, according to a new federal securities document.

The bottom line: There were many reasons Kindred decided to sell, including its large debt load and struggling finances. But executives also were worried about Congress cutting Medicare and Medicaid, a big revenue source for Kindred, to pay for the newly enacted corporate tax cuts.

The details: Kindred's buyout process started in earnest in the spring of 2016 and had a winding path until the deal was announced this past December.

  • More than a half dozen private-equity firms expressed interest in owning Kindred.
  • Humana CEO Bruce Broussard initiated a meeting with Kindred CEO Ben Breier at the 2017 J.P. Morgan Healthcare Conference to talk shop — even though Aetna was still trying to acquire Humana, and before a federal judge ruled against the Aetna-Humana deal.
  • By the time Aetna and Humana officially ended their deal last February, Broussard and Breier had already discussed "potential collaborations."
  • At one point, Kindred received a takeout offer for $16 per share from another interested party before due diligence was conducted, but still well above the $9 per share it ultimately accepted. Because the buyout process lasted so long, Kindred’s stock price fluctuated quite a bit over time.
  • The event that momentarily crippled Kindred's fire sale process: When the Centers for Medicare & Medicaid Services proposed slashing home health payment rates by $1 billion in 2019 by switching to a new payment system.
  • Breier and fellow industry CEOs lobbied CMS to scrap that proposal, and they got what they wanted, which helped boost Kindred's share price.
  • Kindred was still worried about its long-term business, which relies heavily on Medicare and Medicaid patients, turning the Humana and private equity offer into a priority.

1 big stat: Breier is expected to pocket a golden parachute of $19.2 million if the deal is approved and if he doesn't stick around after.

Clarification: This post has been corrected to show that Kindred’s $16 per share offer came before due diligence was conducted and that Kindred’s stock price was volatile over the process. 

Go deeper