Humana in Talks To Buy Kindred With Equity Firms -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 18, 2017).

Humana Inc. is in advanced talks to join with two private-equity firms in a deal to acquire home-care provider Kindred Healthcare Inc., a move that would add to a cascade of transactions aiming to bring together insurance operations with other health-care businesses.

As part of the complex deal, Kindred, a sprawling company with $7.2 billion in revenue last year, is to be divided, according to people familiar with the matter. Welsh, Carson, Anderson & Stowe and TPG would take over Kindred's facility-focused business, which includes long-term acute-care hospitals and rehabilitation centers, while the private-equity firms together with Humana would get its home- and hospice-care operation.

The deal would value Kindred at $9 a share, the people said, a modest premium to where the shares currently trade after rallying sharply in recent weeks. Kindred stock closed Friday at $8.60, giving the debt-laden company a market value of about $750 million. Factoring in debt, Kindred has a so-called enterprise value of about $4 billion.

Though a deal could be announced soon, it's still possible the talks could fall apart.

Kindred is the biggest home-health and hospice operator in the U.S. Its facilities business, meanwhile, includes around 77 long-term care hospitals and 19 rehabilitation hospitals.

Its shares have lagged amid skepticism about the future of some of the company's core businesses, which are heavily dependent on reimbursement from the federal Medicare program. Kindred's 2015 acquisition of Gentiva Health Services Inc. also left the company with a heavy debt load. To help improve its finances, Kindred has been selling off its nursing homes.

Humana, like Kindred based in Louisville, Ky., already has some home-health operations, and has said it wants to get deeper into that business as a way to better manage the health of its Medicare enrollees. The insurer has said it believes closer ties to home-health services and physicians will help it improve care and hold down costs. "Home is often a superior clinical environment to deliver care and reduce high-cost hospital admissions," Chief Executive Bruce Broussard said during Humana's third-quarter earnings call on Nov. 8.

Rivals are making similar moves. UnitedHealth Group Inc. has been on a yearslong campaign to purchase doctor groups, urgent-care clinics and surgery centers. The company announced earlier this month it would buy the physician-group unit of DaVita Inc. for $4.9 billion.

Meanwhile, Aetna Inc. recently agreed to be acquired by drugstore giant CVS Health Corp. for nearly $70 billion. CVS and Aetna have said they want to use the pharmacies as a source of care and coordination for members, including in the home.

The insurers' moves into the health-care provider businesses, often with the goal of reducing patients' use of hospitals, are being countered by hospital companies. Major nonprofit hospital operators Dignity Health and Catholic Health Initiatives have announced they are combining. Ascension and Providence St. Joseph Health, also nonprofits, are in talks about a potential merger that would create the biggest U.S. hospital owner.

For insurers, the tack is partly a reaction to the death of a previous round of proposed deals. Aetna's $34 billion planned acquisition of Humana ran aground this year in the face of an antitrust challenge by the Justice Department. Anthem Inc.'s planned takeover of rival Cigna Corp. was also blocked. Cross-industry combinations like the new round of proposed deals could avoid such pushback.

In the wake of the collapse of its Aetna deal, analysts have suggested Humana itself might be acquired, a possibly that would seem more remote as a result of a tie-up with Kindred -- at least for now.

Humana has a long, on-and-off history in the health-care provider business. In 2015, it sold off Concentra, an urgent-care and occupational-health clinic operator. It was once a major owner of hospitals, but spun them off in 1993 after rival health plans steered patients to competitors.

TPG and Welsh, Carson have deep experience in the health-care industry. This year, for example, TPG agreed to sell surgery-center owner Surgical Care Affiliates Inc. to UnitedHealth for $2.3 billion.

Laura Cooper contributed to this article.

Write to Anna Wilde Mathews at anna.mathews@wsj.com, Dana Mattioli at dana.mattioli@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

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December 18, 2017 02:47 ET (07:47 GMT)