Humana's purchase of Kindred stake unlikely to impact local workforces, executives say

Louisville health insurance giant Humana announced Tuesday that it will acquire a 40-percent stake in Kindred Healthcare's home care business for about $800 million in a larger joint venture with two private equity firms.

If regulators approve the deal, Kindred will be sold for a total of $4.1 billion to Humana and the firms, which are TPG Capital and Welsh, Carson, Anderson & Stowe. Louisville-based Kindred, one of the country's largest players in home care and long-term care facilities, will become private and its operations in hospitals and home care eventually will split.

Significantly for the Louisville area, executives said that they don't expect the deal to impact the local workforces of Humana, which has 11,800 employees, and Kindred, with an estimated 2,100 employees. Both companies pay top salaries and good benefits and have been active in philanthropic efforts.  

Bruce Broussard, Humana's president and chief executive, described the deal as a "great, great opportunity" to accelerate the company's network and services for chronically ill seniors and to drive innovation.

Humana has seized on ways to gain an edge in an increasingly competitive Medicare Advantage marketplace that provides privately run Medicare programs for ages 65 and older. 

Kindred CEO Ben Breier said that the sale would allow Kindred to continue to apply its expertise in home care services and in its hospital operations.

Under the terms of the agreement, Kindred stockholders will receive $9 for each share of common stock, a premium of about 27 percent over the company’s valuation for the period ending last Friday, the last trading day before media reports surfaced about the potential transaction.

Background:Is Humana about to buy Kindred? Reports say companies are in talks

Kindred operates home health, hospice and community care businesses, 77 long-term acute-care hospitals, 19 inpatient rehabilitation facilities and a contract rehabilitation services business. Kindred and subsidiaries had about 86,400 employees in nearly 2,500 locations in 45 states as of late September. Its annual revenues are $6.1 billion.

After the acquisition, Kindred's home health, hospice and community care businesses will be operated as a stand-alone company in which Humana owns a 40 percent stake. The balance will be owned by TPG, which is headquartered in Fort Worth, Texas, and San Francisco, and by New York City-based Welsh, Carson, Anderson & Stowe.

Humana will have a right to buy the remaining ownership interest in the Kindred at Home entity over the next three to five years. Kindred’s long-term acute-care facilities and rehab businesses will be operated as a separate specialty hospital company owned by the two firms. Breier will remain as the CEO over the hospitals part of the business.

Humana officials noted that the transaction will provide the insurer with extensive geographic coverage, with roughly 65 percent overlap with its individual Medicare Advantage members. It also will provide more data and analytics to improve care for seniors, Broussard said during a conference call with local media Tuesday morning.

“The combination of Humana At Home’s pursuit of improving care for seniors living with chronic conditions, in concert with Kindred at Home’s care delivery, will allow these important capabilities to create more effective care in a compassionate way for our members,” said William Fleming, Humana’s healthcare services president.

He said the deal holds the potential to cut medical costs and improve wellness. "We believe this work will lead to reduced hospitalizations, reduced emergency room visits, and allow physicians and clinicians to extend their care all the way to the patient’s home,” Fleming said in the release.

David Causby, now executive vice president and president of Kindred at Home, will serve as CEO of Kindred at Home. 

Read this:Could Humana be the target of a Walmart takeover?

More:Report: Louisville's Kindred Healthcare may be exploring a sale

The transactions are expected to close next summer if state and federal regulators sign off. Humana expects to pay company cash for the purchase, and executives don't expect it to impact earnings in 2017 or change the outlook for 2018. Earnings could take a hit in 2019 and beyond, the statement said.

The deal doesn't surprise health care analysts who have followed Kindred closely. The debt-strapped company has tried to cut its exposure to declining reimbursements paid under the federal Medicare program. 

When the company sold off nearly 90 skilled nursing centers last summer, analysts speculated that the $910 million in deals may lead to a far bigger transaction in which Kindred itself is broken apart and sold. Breier said that the Kindred team has spent 2017 working on strategies.

Humana executives, meanwhile, have consistently said since a purchase by Aetna unraveled earlier this year that the company would look for acquisition opportunities and focus on improving care for chronically ill older Americans.

But Broussard acknowledged that the acquisition doesn't preclude another company from making a play to buy Humana. The recently announced plan for pharmacy retailer CVS to buy insurance rival Aetna has led analysts to suggest Humana may be a takeover target too.

"We don't like speculating," Broussard said in response to a question. But "my suspicion is they (prospective buyers) would continue to be interested in the company." 

Two executives at the private equity firms said they think their resources — cash — can help grow Kindred's business lines. TPG’s health care team has worked with companies and management teams "that hold significant growth potential,” according to a statement from Jeff Rhodes, a partner at TPG.

D. Scott Mackesy, managing partner of Welch Carson, Anderson & Stowe, echoed the sentiment that his company has aligned with strong management teams to drive results.

Grace Schneider: 502-582-4082; gschneider@courierjournal.com; Twitter: @gesinfk. Support strong local journalism by subscribing today: www.courier-journal.com/graces