Friday, May 30, 2014

Kindred Undeterred in Pursuit of Gentiva


Gentiva remains in Kindred's sights, even after executing a "poison pill" defense. Here's the text of Kindred's letter to Gentiva's Chairman Rod Windley and CEO Tony Strange:

Since the May 15, 2014 public announcement of our offer to acquire Gentiva for total consideration of $14.00 per share, we have heard from both companies’ shareholders – and sell-side research analysts have reported – that they support a combination and that the price is a very compelling and significant premium to Gentiva’s historic trading price and projected earnings estimates. We are certain you have heard the same from your shareholders.

We are disappointed, however, that instead of listening to your shareholders – the true owners of Gentiva – and immediately entering into good faith negotiations with Kindred, your Board has instead implemented a poison pill that limits shareholders’ opportunity to maximize the value of their investment. We question the motive and timing of such implementation, which limits not just Kindred, but all Gentiva shareholders from increasing their investment in the company.

Gentiva has been steadfastly unwilling to begin a dialogue with Kindred, and we believe the implementation of a poison pill further demonstrates that Gentiva is ignoring the will of its shareholders. As you know, our offer represents a 64% premium to Gentiva’s share price on May 14, 2014 (the day prior to Kindred making public the offer) and a 40% premium to Wall Street analysts’ one-year median price target of $10.00 per share. We urge the Gentiva Board to stop erecting obstacles and to immediately engage with our Board and management team to reach agreement on this value creating transaction.

Despite Gentiva’s actions, we will not be deterred. We are determined to pursue the proposed combination of Kindred and Gentiva and are committed over the long-term to achieving our objective. We are ready, willing and able to quickly proceed toward consummating a negotiated transaction.

Paul J. Diaz
Chief Executive Officer
Kindred Healthcare, Inc.
If these were two people dating, Kindred's intent could be viewed as rape. They will have Gentiva no matter what.  How does Phyllis R. Yale, Kindred's Chair, feels about a forced combination?

Anonymous (from Gentiva)

Saturday, May 24, 2014

Gentiva Prescribes Poison Pill


Reuters reported on Gentiva's poison pill, which the company adopted more than a week after rejecting a $533-million hostile bid from LTAC hospital operator Kindred Healthcare.   "Poison pills" are designed to stop hostile takeovers by triggering the issue of new shares that dilute the holdings of investors who exceed a set threshold.

Gentiva set a 15 percent trigger for the rights plan, which will expire on May 20, 2015.  Gentiva rejected Kindred's $14-per-share offer on May 15, saying it undervalued the company.  Kindred, the water glass is in your lawyers' court.

Anonymous (from Gentiva)

Tuesday, May 20, 2014

Kindred-Gentiva Selling to the Middle 60%

Two facts surfaced in Kindred's hostile pursuit of Gentiva.  One, Gentiva insiders control roughly 20% of the company's outstanding shares.  And two, roughly 20% of stockholders hold positions in both Gentiva and Kindred.  That leaves the middle 60% to decide Gentiva's future in any proxy battle.  That's a lot of sales calls. 

Monday, May 19, 2014

Targeting Gentiva: Kindred Board Involvement


Kindred's offer for Gentiva went through their Board Strategic Development Committee.  Kindred's most recent Def14a states:

The Strategic Development Committee has six members consisting of Ms. Phyllis R. Yale (Chair), Mr. Joel Ackerman, Thomas P. Cooper, M.D., Mr. John H. Short, Ph.D., Mr. Paul J. Diaz and Mr. Edward L. Kuntz. As previously noted, Mr. Kuntz has notified the Company that he does not wish to stand for re-election to the Board of Directors,and his term as a member of the Strategic Development Committee will expire upon the conclusion of the Annual Meeting. With the exception of Messrs. Diaz, Short and Kuntz, each member of the Strategic Development Committee is independent as defined under the listing standards of the NYSE. The Strategic Development Committee held one meeting during 2013. The Strategic Development Committee assists the Board of Directors and management in the development and evaluation of the Company’s business and strategic initiatives

Rest assured this group met more than once in 2014 in its pursuit of Gentiva.  Chair Phyliss Yale spent nearly three decades with Bain & Company helping to build Bain's healthcare portfolio.  Yale is familiar with highly leveraged companies like Gentiva and knows how to wreak "efficiencies."  Joel Ackerman spent over a decade with another private equity firm Warburg Pincus, also specializing in healthcare.

Gentiva purchased Harden's home health, hospice and community care businesses from a private equity firm.  Gentiva's CFO told Wall Street analysts they paid a premium for Harden's assets.

Gentiva's latest investor presentation showed the company's preference for growth by acquisitions.  Kindred shares the same strategy.  Gentiva's not ready to be bait, at least not willingly.


Sunday, May 18, 2014

Kindred-Gentiva's "Fat Cat" Fight!


SEC filings show Kindred's unsuccessful courting of Gentiva through two letters.  The offer started off at $13 a share.  It became $14 when Kindred went public in May with their hostile takeover.  It appears Kindred wants Gentiva by hook or crook. 

Also, regarding a separate but related issue, I was shocked to learn that certain Kindred executives are approaching executives in our company about going to work for Kindred, even though those executives are subject to publicly disclosed non-compete agreements. In addition, in connection with your recruiting efforts, your executives are providing to those recruits what we believe to be material non-public information that you agreed to keep confidential. Paul, I am deeply disappointed in these actions and would like to take this opportunity to remind you and make it very clear that we do not approve or condone this behavior.-- Rodney D. Windley, Gentiva's Executive Chairman

Kindred responded they "would not knowingly do" such a thing.

Gentiva lost COO Chris Russos shortly after purchasing Harden Healthcare.  Gentiva CEO Tony Strange counted on Russos to mitigate integration risk.  What would you call buying 160 locations only to close over half that number?  Is that integration or disintegration?

Kindred and Gentiva share unethical billing practices.  Each company paid the government $25 million to settle purported frauds.  Kindred settled around fraudulent kickbacks, while Gentiva paid for billing the government for a higher level of service not indicated by chart documentation.

Kindred may brag of its lower turnover and employer of choice status (in direct contrast to Gentiva), but they aren't blemish free:

Employment-related lawsuits
Four wage and hour class action lawsuits are currently pending against the Company in federal district court for the Central District of California, and are being addressed together by the court. Each case pertains to alleged errors made by the Company with respect to regular pay and overtime pay calculations, waiting times, meal period waivers and wage statements under California law. On March 13, 2013, the court conditionally certified five classes of the seven total classes sought for certification for discovery purposes and declined to certify two others. Notice of class action certification and class members’ right to opt out of the lawsuit was mailed to all of the Company’s current and former California hospital employees. The Company intends to vigorously defend these claims. 

A wage and hour class action lawsuit against the Company alleging violations of federal and state wage and hour laws is pending in federal district court for the Northern District of Illinois. This lawsuit pertains to the Company’s previous automatic meal break deduction practice for non-exempt employees in the Company’s hospitals located outside California. The court granted conditional class certification in part on June 11, 2013. This lawsuit has been settled in principle by the Company’s agreement to pay $0.7 million to claimants from the Company’s five Illinois hospitals, plaintiffs’ attorney’s fees and certain administrative costs, subject to reaching a written settlement agreement and obtaining court approval. 

Based upon available information, the Company recorded an additional $7.0 million loss provision in the fourth quarter of 2013 (for a total loss reserve of $12.7 million) related to these wage and hour lawsuits. The Company continues to evaluate the loss provision in light of potentially relevant factual and legal developments, including information learned through rulings on dispositive motions, settlement discussions and other rulings. The expected loss reserve is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. Given the uncertainty of litigation, the actual loss may vary significantly from the current reserve, which does not represent the Company’s maximum loss exposure. At this time, no estimate of the possible loss or range of loss, in excess of the amount accrued, can be made regarding these lawsuits. 

So Kindred ripped off employees for over $13 million in fair compensation?  Gentiva and Kiindred are cut from the same cloth, each with robust Human Abuse Departments.

This should be one heck of a catfight compete with teeth, claws and lots of legal screeching.


Saturday, May 17, 2014

Gentiva Employees' Future Not in Our Hands


Gentiva and Kindred executives will fight hard to appeal to GTIV's major stockholders.  Dealbook showed Gentiva's major holders.  The names above, if voted in concert, could decide if Gentiva remains a separate company or is gobbled up by Kindred.  Critical developments await, but this provides a backdrop.  Time will tell if Gentiva CEO Tony Strange is the better salesman to major stockholders.


Kindred Gentiva Choose Sides for Battle


The chaos at Gentiva stands to grow several orders of magnitude with Kindred's hostile takeover.  It comes as Gentiva (per recent investor presentations):

1) Closed or consolidated nearly 100 locations (35-40 of which overlapped markets)

2) Had negative cash flow due to interest payments on debt and annual incentive compensation (including executive incentive pay)

3) Called for local marketers to sell home health, hospice and community care services.  Also, Executives do sales calls with teams every other month.

4) Conducted branch by branch clinician rationialization, i.e. slashed staffing yet again (in Q1, March at latest for some branches)

5)  Bonds are callable in August, but the company needs to focus on completing the Harden integration in the meantime.

6)  Gentiva would seek to acquire other companies in our space come August or September.  

"Future fisher" Gentiva is now the bait.  Kindred struck the day after Gentiva presented at the Bank of America-Merrill Lynch Healthcare Conference.  Battle teams have been assembled.   

Gentiva Health Services has engaged Kekst and Company for PR support as it works to fend off a $533M hostile bid from hospital operator Kindred Healthcare.

Joele Frank, Wilkinson Brimmer Katcher is working with Louisville, Ky.-based Kindred, which has also engaged proxy solicitation firm D.F. King & Co.

Gentiva also hired law firm Greenberg Traurig and financial advisors Barclays Capital and Edge Healthcare Partners. Kindred is working with Cleary Gottlieb Steen & Hamilton and Citi. 

This will consume top leadership time and attention.  It also will take huge chunks of money, as none of the above organizations work cheap.

Both sides will sell hard to institutional holders like Blackrock, Wells Fargo, Vanguard, Dimensional Fund and hedge funds like Mario Gabelli's GAMCO and Larry Feinberg's Oracle Partners.  Executive officers and board members hold roughly 19% of Gentiva's total shares.  Employees remain peons in a proxy fight.

The interesting piece is the promotion of David Causby to President and Chief Operating Officer.  That came the day before Kindred went public with their $14 per share offer.  CEO Tony Strange and Causby spoke to employees in a conference call, promising to keep staff informed every step of the way.

Gentiva executives are in the fight for their life, only they have golden parachutes to fall back upon.  The rest of us aren't so lucky.  The corporate battle is just beginning.  Gentiva's level of chaos stands to grow exponentially, leaving employees and patients vulnerable to inattention and ongoing management abuse.  Just when I thought it couldn't get any worse....


Thursday, May 15, 2014

Kindred Goes After Gentiva


Gentiva gobbled up Harden's home health and hospices then cut nearly 100 sites via combination or elimination.  Kindred Healthcare wants to do likewise to Gentiva.  Will the gobbler become the gobblee?


Saturday, May 10, 2014

Impact of Gentiva's Fewer Same Stores


Gentiva held their first quarter earnings call on Wednesday morning.  Wall Street analysts struggled with how to interpret revenue from existing locations, a term known as "same store sales."  CEO Tony Strange said, "I realize that we need to provide you guys with some information that help you understand what do we look like on a same-store basis."  Here's that help:

And why we can't quantify that, here's the way I'm looking. But I think in my prepared remarks, I think I've -- I'll use Home Health as an example. I said that in -- I think our episodic admissions grew 9% year-over-year, which included Harden. I think I also said that I would expect that number to go to double digits in Q2, primarily because we would eliminate the impact of the weather. So think of the combined growth as a low-single-digit growth. When we anniversary the Harden transaction in Q4, I would expect that low double-digit growth to drop back to a low single-digit growth. So in terms of using a benchmark, if you were to hear me say in Q2 or Q3 that admissions were 8% or 9%, that's going to mean more than likely on a same-store basis, they were down. If you hear that number being in the low double-digit, that's going to imply that we're experiencing low single-digit growth inside the business on a same-store, somewhat of a pro forma type basis. Is that helpful?
It's not only tangential but obtuse.  Nevertheless, I'll give it a go.  Since hospice was only up 5% on a combined basis (up 69 hospice sites before falling to only up 20 hospice sites) it was down.

Later a Wall Street analyst asked about Gentiva's culture at ground level:

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division
But what's been the reaction of people on the ground (to OneGentiva)? Are you getting a lot of push back? Is this something -- or are the rank-and-file clinicians, I hate to use that word, but are they embracing it as it’s about time guys, what have you been waiting for? What's happening to the culture of Gentiva at the main street level? 

Tony Strange - Chief Executive Officer, President and Director
Well, it's insightful that it -- because, first of all, you recognize that this is a major change culturally in the field. And so I don't want to minimize that impact. We have finished the implementation of the organizational structure, which in my mind is the skeleton, the backbone of One Gentiva. We've changed the incentive plans so to -- in an effort to remove any disincentive of people to doing the right thing for the patient. But once you get all of that out and I think your question was at the patient's bedside, what is the reaction to the people who were providing these services? And I think the answer is right where you were leading the question, is I think folks are glad that they can do the right thing for the patient. 

Our site had a different first quarter.  A number of staff removed "any disincentive for doing the right thing for the patient" by leaving and going to competitor hospices.  Company turnover statistics apparently missed our mass exodus.  I wonder if incentives exist for low turnover.  That might explain our highly distorted numbers.  Or lying about employment could be a cultural norm.  Gentiva has 75 fewer locations and the exact same number of employees, 47,000.

Whether lying is a part of OneGentiva now, it will soon be fully integrated.

The organizational structure has been fully implemented and the last phase of rolling out the combined incentive structure, which will further solidify the joint accountability was finalized last week

As if Gentiva's abysmal management haven't distorted enough.  Pressing the accelerator on incentives will cause people to focus on their pay instead of serving others.  Incentives distort, whether it be the C-suite, school systems or the Veterans Administration.  Fear does as well.  They are but two sides of the same coin.