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.