Gentiva Refuses Kindred Bid, Shares Surge - Analyst Blog

Gentiva Health Services Inc.'s GTIV rejection of the takeover proposal from Kindred Healthcare Inc. KND is hitting headlines and drawing investor attention to the healthcare space. Post discarding the unsolicited bid made by Kindred, shares of Gentiva skyrocketed 62% in the last trading session to close at $13.83.

The purchase offer from Kindred worth $533 million was to be paid equally in cash and shares. After careful evaluation of the successive, non-binding proposals from Kindred on Apr 14 and May 5, 2014, Gentiva considered the deal as undervalued and to safeguard its shareholders' worth, rejected it. Subsequently, Kindred stated that if Gentiva would prefer, it was willing to assume the bid-upon company's debt, taking the total purchase consideration to $1.6 billion in an all-cash deal.  

However, Gentiva seemed to be confident with its One Gentiva initiative and thereby refrained from accepting the proposal. The company's board of directors commented that it was capable of generating significant value for its shareholders through One Gentiva and other strategic initiatives. One Gentiva is the corporate restructuring initiative taken by the company at the end of the third quarter of 2013 to bring its home health, hospice and community care businesses under a common regional management structure so as to better align its operations.

Notably, following this news, Moody's Investors Service, the credit rating wing of Moody's Corporation MCO reiterated all its ratings on Gentiva with a negative outlook. These ratings include the Corporate Family Rating CFR of “B3”, Probability of Default Rating (PDR) of “B3-PD” and the Speculative grade Liquidity Rating of “SGL-3”. Moody's believes that while it is true that the acquisition would bring benefits like greater scale, favorable payor mix and enhance Gentiva's business profile, the uncertainties related to the deal would dwarf the positives.

However, as per other media sources, some consider that the integration of Gentiva and Kindred could have been beneficial since it would have created an entity capable of catering to 127,000 patients on a per day basis in 47 states and generate annual revenues of approximately $7.2 billion. However, we cannot altogether discard the fact that with the takeover pressure at its doorstep, Gentiva might even become aggressive in enhancing its financial structure and policies, so as to enhance its shareholders' return and retain their confidence in the stock.

Gentiva carries a Zacks Rank #3 (Hold). However, investors might consider a better-ranked healthcare stock like RadNet, Inc. RDNT, which has a Zacks Rank #2 (Buy).