- Provides Humana an ownership interest
in the nation’s largest home health operator and complements
Humana’s existing Humana At Home care coordination
capabilities
- Kindred’s homecare business has the
broadest geographic coverage in its sector with approximately 65
percent overlap with Humana membership
- Advances Humana’s integrated care
delivery strategy to make it easier for members to engage in their
health by providing care to seniors living with chronic conditions
in their home, a member preferred lower cost setting
- Minority ownership allows Kindred’s
homecare business to continue to grow as an independent company
while Humana provides capabilities to transform the home health
model to a value-based care platform
- Put/call structure provides Humana a
path to full ownership of Kindred’s homecare business in three to
five years with an exercise price determined, in part, by the
achievement of certain clinical outcomes
- Humana’s strategic and economic
interest is exclusively in Kindred’s homecare business, enabling
focus on driving business transformation and maximizing platform
agility
Humana Inc. (NYSE: HUM) today announced it has signed a
definitive agreement to acquire a 40 percent minority interest in
the Kindred at Home Division (Kindred at Home) of Kindred
Healthcare, Inc. (NYSE: KND), the nation’s largest home health
provider and second largest hospice operator, for estimated cash
consideration of approximately $800 million, including Humana’s
share of transaction and related expenses to facilitate a complete
separation from the Long Term Acute Care and Rehabilitation
businesses (the Specialty Hospital company). The transaction and
related expenses include, among other costs, bond breakage fees,
the extinguishment of certain legacy liabilities, the acceleration
of certain stock awards, and advisory fees and expenses. The
implied enterprise value of Kindred at Home is $3.15 billion before
these expenses.
As announced today, TPG Capital (TPG) and Welsh, Carson,
Anderson & Stowe (WCAS), two private equity funds (the
Sponsors), along with Humana are jointly creating a consortium to
purchase all of the outstanding and issued securities of Kindred
Healthcare, Inc. Simultaneously with the closing of that
transaction, TPG and WCAS will separate Kindred at Home from the
Specialty Hospital company and form a joint venture with Humana to
own Kindred at Home. Humana will own 40 percent of Kindred at Home,
with the remaining 60 percent owned by a new entity owned by TPG
and WCAS. Currently, nearly 40,000 caregivers serve approximately
130,000 patients daily in Kindred at Home with annual revenues of
approximately $2.5 billion. Humana will have no economic interest
in the Specialty Hospital company.
Humana believes that a key component of the next generation of
its integrated care delivery model is the ability to provide care
to consumers, including Humana members, in their home, meeting them
where they want to be, in a preferred lower cost setting. This
transaction will help Humana manage the chronic conditions of its
members and others it serves and provide an additional avenue for
the company to address activities of daily living, medication
adherence and other health determinants, reinforcing its commitment
to managing health holistically, not episodically.
“The acquisition of a minority interest in Kindred at Home, the
largest home health company in the country with significant overlap
with Humana membership, brings to us an experienced, well-respected
home health provider with robust access to extensive clinical
capabilities that will allow us to accelerate our strategy to more
deeply integrate with our members’ lifestyles,” said Bruce D.
Broussard, Humana’s President and Chief Executive Officer. “We are
excited about the opportunity this acquisition provides to advance
our vision for integrated care delivery, as we continue to deliver
our Humana At Home capabilities while building a transformative
platform for the future. We believe that care in the home is a
vital element of improving the health of seniors living with
chronic conditions, allowing them to receive services in the
comfort of their home, with less time in more costly institutional
settings.”
This transaction will provide the company with extensive
geographic coverage, with approximately 65 percent overlap with
Humana’s individual Medicare Advantage membership. In addition, the
robust data sharing between Humana and Kindred at Home will yield
improved analytics and predictive modeling, providing a
transformative platform for the future to advance capabilities
including remote monitoring, telehealth, and digital interactions
with members and physicians. This technology, together with a
collaborative advanced payment model, will arm clinicians with
better information to close gaps in care and improve quality.
“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 President - Healthcare Services. “We
look forward to transforming post-acute care through a value-based
approach that will deliver improved clinical outcomes, ultimately
lowering medical costs. 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.”
The agreement with the Sponsors includes a put option under
which they have the right to require Humana to purchase their
interest in the joint venture starting at the end of year three and
ending at the end of year four post close. Consideration upon
exercise of the put option per the agreement would be valued at an
exit multiple of 10.5 times the preceding twelve months earnings
before interest, income taxes, depreciation and amortization, or
EBITDA, subject to certain adjustments and other provisions
customary for transactions of this nature. In addition, the
multiple is subject to adjustment up to 11.5 times EBITDA based on
the achievement of certain pre-defined value-based outcomes tied to
clinical metrics. The 11.5 times EBITDA exit multiple is comparable
to the valuation for Humana’s 40 percent interest. Finally, Humana
has a call option under which it has the right to require the
Sponsors to sell their interest in the joint venture to Humana
beginning at the end of year four and ending at the end of year
five post close for cash consideration using the same valuation
methodology applicable to the previously discussed put option
consideration.
David Causby, currently Executive Vice President and President
of Kindred at Home, will serve as Chief Executive Officer of
Kindred at Home. The governance structure of the joint venture will
be customary for transactions of this nature, including protective
rights for Humana, with Humana having heightened oversight over
quality, clinical outcomes and compliance.
“We are pleased with our unique partnership with the Sponsors in
Kindred at Home, which is aligned around value-based care with
incentives designed to drive improved outcomes for the people we
serve,” said Brian A. Kane, Humana’s Senior Vice President and
Chief Financial Officer. “The transaction structure provides
geographic and clinical scale at an attractive valuation in a
capital efficient manner, minimizing our upfront capital outlay,
limiting the distraction of an immediate outright acquisition,
eliminating all exposure to non-core assets in the Specialty
Hospital company, and providing us with a path to eventual control
of the nation’s largest home health company in three to five years
via a put and call option structure. Our sophisticated Sponsor
partners will focus on driving growth in the fee-for-service
business while together we concentrate on executing a
transformation of the home health model to a value-based care
platform in a lower risk setting without distraction from our core
operations, benefiting both Humana and Kindred at Home over the
long-term.”
These transactions, which are anticipated to close in the summer
of 2018, are subject to customary state and federal regulatory
approvals, including approval by the stockholders of Kindred and
the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, as well as other
customary closing conditions. Humana expects to fund the
transaction through the use of parent company cash and will account
for its minority investment under the equity method. The company
does not anticipate a material impact to earnings in 2017 from this
pending transaction. Given that Humana’s previous financial
commentary for the year ending December 31, 2018 contemplated
capital deployment, it is not expected that this acquisition will
materially change the outlook that was provided. Humana expects the
transaction to be slightly accretive to earnings per diluted common
share in 2019 and beyond.
Morgan Stanley & Co. LLC is acting as lead financial advisor
to Humana and the Sponsors. JPMorgan Chase is also acting as lead
financial advisor to the Sponsors. TripleTree, LLC is acting as
strategic and financial advisor to Humana. Evercore provided a
fairness opinion to the Board of Directors of Humana. Fried, Frank,
Harris, Shriver & Jacobson LLP is acting as legal advisor to
Humana.
Cautionary Statement
This news release includes forward‐looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
When used in investor presentations, press releases, Securities and
Exchange Commission (SEC) filings, and in oral statements made by
or with the approval of one of Humana’s executive officers, the
words or phrases like “expects,” “believes,” “anticipates,”
“intends,” “likely will result,” “estimates,” “projects” or
variations of such words and similar expressions are intended to
identify such forward‐looking statements.
These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and
assumptions, including, among other things, information set forth
in the “Risk Factors” section of the company’s SEC filings, a
summary of which includes but is not limited to the following:
- If Humana does not design and price its
products properly and competitively, if the premiums Humana
receives are insufficient to cover the cost of healthcare services
delivered to its members, if the company is unable to implement
clinical initiatives to provide a better healthcare experience for
its members, lower costs and appropriately document the risk
profile of its members, or if its estimates of benefits expense are
inadequate, Humana’s profitability could be materially adversely
affected. Humana estimates the costs of its benefit expense
payments, and designs and prices its products accordingly, using
actuarial methods and assumptions based upon, among other relevant
factors, claim payment patterns, medical cost inflation, and
historical developments such as claim inventory levels and claim
receipt patterns. The company continually reviews estimates of
future payments relating to benefit expenses for services incurred
in the current and prior periods and makes necessary adjustments to
its reserves, including premium deficiency reserves, where
appropriate. These estimates, however, involve extensive judgment,
and have considerable inherent variability because they are
extremely sensitive to changes in claim payment patterns and
medical cost trends, so any reserves the company may establish,
including premium deficiency reserves, may be insufficient.
- If Humana fails to effectively
implement its operational and strategic initiatives, particularly
its Medicare initiatives, state-based contract strategy, and its
participation in the new health insurance exchanges, the company’s
business may be materially adversely affected, which is of
particular importance given the concentration of the company’s
revenues in these products. In addition, there can be no assurances
that the company will be successful in maintaining or improving its
Star ratings in future years.
- Certain proposed transactions,
including the divestiture of Humana’s subsidiary, KMG America
Corporation, and the acquisition of a minority interest in Kindred
Healthcare, Inc.’s Kindred at Home division by Humana, are subject
to various closing conditions, including various regulatory
approvals and customary closing conditions, as well as other
uncertainties, and there can be no assurances as to whether and
when these transactions may be completed.
- If Humana fails to properly maintain
the integrity of its data, to strategically implement new
information systems, to protect Humana’s proprietary rights to its
systems, or to defend against cyber-security attacks, the company’s
business may be materially adversely affected.
- Humana is involved in various legal
actions, or disputes that could lead to legal actions (such as,
among other things, provider contract disputes relating to rate
adjustments resulting from the Balanced Budget and Emergency
Deficit Control Act of 1985, as amended, commonly referred to as
“sequestration”; other provider contract disputes; and qui tam
litigation brought by individuals on behalf of the government) and
governmental and internal investigations, any of which, if resolved
unfavorably to the company, could result in substantial monetary
damages or changes in its business practices. Increased litigation
and negative publicity could also increase the company’s cost of
doing business.
- As a government contractor, Humana is
exposed to risks that may materially adversely affect its business
or its willingness or ability to participate in government
healthcare programs including, among other things, loss of material
government contracts, governmental audits and investigations,
potential inadequacy of government determined payment rates,
potential restrictions on profitability, including by comparison of
profitability of the company’s Medicare Advantage business to
non-Medicare Advantage business, or other changes in the
governmental programs in which Humana participates.
- The Healthcare Reform Law, including
The Patient Protection and Affordable Care Act and The Healthcare
and Education Reconciliation Act of 2010, could have a material
adverse effect on Humana’s results of operations, including
restricting revenue, enrollment and premium growth in certain
products and market segments, restricting the company’s ability to
expand into new markets, increasing the company’s medical and
operating costs by, among other things, requiring a minimum benefit
ratio on insured products, lowering the company’s Medicare payment
rates and increasing the company’s expenses associated with a
non-deductible health insurance industry fee and other assessments;
the company’s financial position, including the company’s ability
to maintain the value of its goodwill; and the company’s cash
flows. Additionally, potential legislative changes, including
activities to repeal or replace, in whole or in part, the Health
Care Reform Law, creates uncertainty for Humana’s business, and
when, or in what form, such legislative changes may occur cannot be
predicted with certainty.
- Humana’s continued participation in the
federal and state health insurance exchanges, which entail
uncertainties associated with mix, volume of business and the
operation of premium stabilization programs that are subject to
federal administrative action, could adversely affect the company’s
results of operations, financial position and cash flows.
- Humana’s business activities are
subject to substantial government regulation. New laws or
regulations, or changes in existing laws or regulations or their
manner of application could increase the company’s cost of doing
business and may adversely affect the company’s business,
profitability and cash flows.
- If Humana fails to develop and maintain
satisfactory relationships with the providers of care to its
members, the company’s business may be adversely affected.
- Humana’s pharmacy business is highly
competitive and subjects it to regulations in addition to those the
company faces with its core health benefits businesses.
- Changes in the prescription drug
industry pricing benchmarks may adversely affect Humana’s financial
performance.
- If Humana does not continue to earn and
retain purchase discounts and volume rebates from pharmaceutical
manufacturers at current levels, Humana’s gross margins may
decline.
- Humana’s ability to obtain funds from
certain of its licensed subsidiaries is restricted by state
insurance regulations.
- Downgrades in Humana’s debt ratings,
should they occur, may adversely affect its business, results of
operations, and financial condition.
- The securities and credit markets may
experience volatility and disruption, which may adversely affect
Humana’s business.
In making forward‐looking statements, Humana is not undertaking
to address or update them in future filings or communications
regarding its business or results. In light of these risks,
uncertainties, and assumptions, the forward‐looking events
discussed herein may or may not occur. There also may be other
risks that the company is unable to predict at this time. Any of
these risks and uncertainties may cause actual results to differ
materially from the results discussed in the forward‐looking
statements.
Humana advises investors to read the following documents as
filed by the company with the SEC for further discussion both of
the risks it faces and its historical performance:
- Form 10‐K for the year ended December
31, 2016;
- Form 10-Q for the quarter ended March
31, 2017, June 30, 2017, September 30, 2017; and
- Form 8‐Ks filed during 2017.
About Kindred Healthcare
Kindred Healthcare, Inc., a top-105 private employer in the
United States, is a FORTUNE 500 healthcare services company based
in Louisville, Kentucky with annual revenues of approximately $6.1
billion. At September 30, 2017, Kindred’s continuing operations,
through its subsidiaries, had approximately 86,400 employees
providing healthcare services in 2,475 locations in 45 states,
including 77 long-term acute care hospitals, 19 inpatient
rehabilitation hospitals, 16 sub-acute units, 609 Kindred at Home
home health, hospice and non-medical home care sites of service,
101 inpatient rehabilitation units (hospital-based) and contract
rehabilitation service businesses which served 1,653 non-affiliated
sites of service. Ranked as one of Fortune magazine’s Most Admired
Healthcare Companies for eight years, Kindred’s mission is to
promote healing, provide hope, preserve dignity and produce value
for each patient, resident, family member, customer, employee and
shareholder we serve. For more information, go to
www.kindredhealthcare.com.
About TPG
TPG is a leading global alternative asset firm founded in 1992
with more than $73 billion of assets under management and offices
in Austin, Beijing, Boston, Dallas, Fort Worth, Hong Kong, Houston,
London, Luxembourg, Melbourne, Moscow, Mumbai, New York, San
Francisco, Seoul, and Singapore. TPG’s investment platforms are
across a wide range of asset classes, including private equity,
growth venture, real estate, credit, and public equity. TPG aims to
build dynamic products and options for its investors while also
instituting discipline and operational excellence across the
investment strategy and performance of its portfolio. For more
information, visit www.tpg.com.
About Welsh, Carson, Anderson &
Stowe (WCAS)
WCAS focuses its investment activity in two target industries:
technology and healthcare. Since its founding in 1979, WCAS has
organized 16 limited partnerships with total capital of over $22
billion. The Firm is currently investing an equity fund, Welsh,
Carson, Anderson and Stowe XII, L.P., which closed on over $3.3
billion in commitments. WCAS has a current portfolio of
approximately twenty companies with 2017 annual revenues totaling
over $16 billion. WCAS’s strategy is to partner with outstanding
management teams and build value for its investors through a
combination of operational improvements, internal growth
initiatives and strategic acquisitions. See www.wcas.com to learn more.
About Humana
Humana Inc. is committed to helping our millions of medical and
specialty members achieve their best health. Our successful history
in care delivery and health plan administration is helping us
create a new kind of integrated care with the power to improve
health and well-being and lower costs. Our efforts are leading to a
better quality of life for people with Medicare, families,
individuals, military service personnel, and communities at
large.
To accomplish that, we support physicians and other health care
professionals as they work to deliver the right care in the right
place for their patients, our members. Our range of clinical
capabilities, resources and tools – such as in-home care,
behavioral health, pharmacy services, data analytics and wellness
solutions – combine to produce a simplified experience that makes
health care easier to navigate and more effective.
More information regarding Humana is available to investors via
the Investor Relations page of the company’s website at humana.com,
including copies of:
- Annual reports to stockholders;
- Securities and Exchange Commission
filings;
- Most recent investor conference
presentations;
- Quarterly earnings news releases and
conference calls;
- Calendar of events; and
- Corporate Governance information.
Additional Information and Where to
Find It
Kindred will file with the SEC and mail to its stockholders a
proxy statement in connection with the proposed merger. We urge
investors and security holders to read the proxy statement when it
becomes available because it will contain important information
regarding the proposed merger. You may obtain a free copy of the
proxy statement (when available) and other related documents filed
by Kindred with the SEC at the SEC’s website at www.sec.gov. You
also may obtain the proxy statement (when it is available) and
other documents filed by Kindred with the SEC relating to the
proposed merger for free by accessing Kindred’s website at
www.kindredhealthcare.com by clicking on the link for “Investors”,
then clicking on the link for “SEC Filings.”
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171219005620/en/
Humana Investor RelationsAmy Smith, 502-580-2811Amysmith@humana.comorHumana Corporate
CommunicationsTom Noland, 502-580-3674Tnoland@humana.com
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