Gentiva Sold: Kindred Wins!

StrangeTony,

Gentiva's stock roared, up nearly three dollars on the day as the company announced it would sell 100% of its shares to Kindred Healthcare.  Gentiva shareholders will receive $14.50 in cash and $5 in Kindred stock in the buyout. 

It was fascinating to hear Gentiva executives describe the deal to employees.  Senior leaders pressed hard to get the bid up to $18.50 and eventually the agreed upon $19.50.  They will endeavor to ensure that benefits remain as planned, although employees' 2015 health insurance surprise is yet to be revealed.  

Kindred does not need two executive suites and the acquirer calls the shots on who remains.  Kindred expects $70 million in annual cost savings after year one, so Gentiva's top layer could soon be gone. 

Kindred's investor call occurred at 9:00 am.  Due diligence gave Kindred confidence in Gentiva as an operator, in the company's financial performance and its accomplishments via the OneGentiva initiative.  

From my view OneGentiva aligned employees in ensuring the company's senior leaders are personally enriched.  Patient care is a clear afterthought.  Who can forget senior leaders declaring earlier this year:

We've had some rocky years.  In this industry there's been a negative environment that's been out there in both the home health and hospice.  We all hope that will subside over time and we'll get back to focusing on the patient need, patient care and the industry will start to climb again.

Gentiva's employee call came at 3:30 pm.  Leaders stated Gentiva employees did the work that enabled executives to return this incredible deal.  Which set of Gentiva employees deserve the credit?  Is it the 47,000 cited in CEO Tony Strange's December 2013 investor presentation or the 46,000 referred to in sellout documents.  How will the 1,000 employees who lost jobs be rewarded in Gentiva's incredible deal?  How will the current 46,000 actually benefit?

Gentiva leaders have three months to put their words into action.  Will they share the tiniest bit of over $40 million in cash flow the last quarter?  How much did that grow in the just ended third quarter?  This crew is not know for sharing.  In my tenure with the company there has been one year of raises and it was paltry.

The handful at the top will be richly rewarded.  This is the gross value of their stock holdings.

The number does not include stock issued between now and the deal's close, nor does it include change of control or severance obligations, also known as golden parachutes.  

It's hard on the ego to go from running a company to heading up a division.  Gentiva's hospice, home health and community care operations will end up in the Kindred at Home division.

Gentiva's 46,000 employees should keep their heads up between now and the deal's close.  Kindred's slides show Gentiva with 39,500 caregivers as of June 30, 2014.  What happened to 6,500 Gentiva workers?  Have they been whittled during the due diligence process or is more pain to come?  

Unfortunately, no Wall Street analyst honed in on the discrepancy between buyer and seller on total employment.  It's our burden to experience. 

Kindred CEO Paul Diaz said the deal is immediately accretive, i.e. will have a positive impact on the company's financials.  This portends a continuation of Gentiva's low to no raise wage practices.  Diaz' effusiveness as to Gentiva's operations focused mostly on financial measures.  This is another bad sign.  

Yes, Gentiva employees should wait for concrete action by Kindred's integration teams.  Kindred is free to offer more substantial language in its aims toward Gentiva employees.  Nothing prevents leadership from offering an overall human resource strategy to employees joining the Kindred family.

I asked a longtime physician how many healthcare mergers/acquisitions improved care in his time practicing.  Only one out of ten did.  That merger occurred in a time when leadership had balance between the various management disciplines.  That era is long gone.  

There is a limit as to how much people can give a company.  I've seen Gentiva push beyond that numerous times and pay the price via turnover.  Kindred's integration teams should be wary of making the same mistake.

Anonymous (from Gentiva)

P.S. - The 2015 surprise is a 15% reduction in employer health insurance contributions

Gentiva: Trick or Treat?

StrangeTony,

September passed without a deal announcement.  It's now an October event.  Recent instability in the stock market could spill into the debt arena.  This would not concern Kindred, given it raised over $200 million in cash from a June secondary offering:

Kindred Healthcare Inc (NYSE: KND) priced a 9,000,000 share secondary stock offering at $23.75 per share. Buyers in that offering made a considerable investment into the company, expecting that their investment would go up over the course of time. 

Kindred stock closed at $20.04 on Friday, down $3.71 a share from the secondary.

The unnamed suitor, Kindred's competitor, would likely need to borrow a significant amount to close any deal priced at $17.25 a share or higher.  

Recent trading in Gentiva has been at a discount to this announced price.  The stock closed yesterday at $16.74 per share, a 51 cents discount to the last publicly shared offer.  This means there is some uncertainty as to a deal being completed at the $17.25 offer.

Employees know that costs are being mircro-managed, which means people are as well.  Many survived the Ides of September.  How many will get through Shock-tober?

Anonymous (from Gentiva). 

Gentiva Polishing Financials Prior to Sale Hurts Real People

StrangeTony,

Gentiva CEO Tony Strange was effusive in his praise for senior leaders in the company's last earnings call:

I think they have done yeoman's work in getting out ahead of the costs on the cost side of One Gentiva. So I think from a cost perspective, I would tell you that we are where we expected to be or even further along from where we expected to be. 

Those on the inside know One Gentiva cost cutting did not slow in the third quarter.  In fact it accelerated.  The company decimated our site, a serious blow given the ongoing trauma inflicted by our Branch Manager.  We no longer give exceptionally good care and for that I grieve.  

Due diligence is the period where reductions are made so the new owner doesn't look like the bad guy.  It puts the company in a position to pay higher interest expenses on an ongoing basis, assuming revenues don't drop.  

Think of it like a new home where the buyer takes on a bigger mortgage.  Without more income something has to be cut to fund the increased house payment.  It could be food, electricity, clothing, whatever.  In Gentiva's case it's anything and everything.  Leaders are cutting expenses willy-nilly.

One Gentiva continues to shed employees, some completely while others face hour reductions.  The company expects savings.  

Any employee wanting to put a dent in those savings and help themselves at the same time should explore unemployment benefits.  It varies by state but consider this advice from 2009:

Karin Patrick of Roseville works for a small non-profit agency and it's not doing well. Patrick's hours were cut from five days a week to three. A colleague, however, was laid off. 

So, Patrick decided to see what the state could offer her if she eventually gets laid off too. What she found was that she didn't have to wait, she could apply for benefits right now. 

"That was a big surprise," she said. "I'd never heard that."

Lee Nelson of the state's Department of Employment and Economic Development - or DEED - said placards in workplaces describing unemployment benefits clearly say that you can get state help if your hours are reduced. 

"I don't think in anyway it's hidden from people. You won't find it on a billboard anywhere," he said.

Gentiva buys unemployment insurance and the more people that use it, the more Gentiva will pay in the future.  This may be an option for those who've been laid off or had their hours reduced.  Think about it if you've been harmed in the latest round of cuts.  You could help yourself and thumb corporate chiefs simultaneously.  That's not a bad bargain.  

Q3 ends in a few hours.  How will this nefarious crew torment employees in Q4?

Anonymous (from Gentiva) 

Hollow Commitments to Date

StrangeTony,

Nearly five months ago Gentiva executives spoke with employees about Kindred's public offer to buy our company for $14 per share.

"I can't predict what they will do next.  Um, but what I will commit to is that we will keep you informed.  We will, um, uh, keep uh communication going through these types of calls, we'll keep communication coming in the form of um written updates, matter of fact uh, by the time we finish this call there will be a written update, uh, that'll go out to the whole company afterwards.  So, with all that said, um, I'm, I'm feeling good about where we are, I'm feeling good about our results, I feel good about where we're headed.  I feel best of all about the care we're providing to 110,000 patients tonight."--CEO Tony Strange 5-15-14

"We want to be transparent with our employees and communicate, keep you informed of exactly what's happening inside the company."--Executive Vice President & COO David Causby

The silence from Atlanta is deafening.  Our site moved from the gold standard to silver, then copper.  Due diligence turned us into lead under Tony Strange and David Causby.  As usual they paid lip service to employees at the end of the call.

"(With One Gentiva) we focused on putting our patients and employees in the center of what we do every day."--Executive Vice President & COO David Causby

Who knew "what we do" would be a bulls eye?  Silence, no raises, job cuts and hour reductions show their true commitment.  It's to their and Wall Street's pocketbooks.

Anonymous (from Gentiva)

Kindred Talks Gentiva in NYC

StrangeTony,

Kindred CEO Paul Diaz spoke on September 10 at the Morgan Stanley Global Healthcare Conference.  He had this to say about his firm's pursuit of Gentiva:

I can't obviously comment on the Gentiva transaction specifically, other than that we continue to do our work and the Gentiva management team has been, you know, really good and forthcoming.  They've obviously make a lot of progress here in the last couple of quarters, so that excites us and sort of reinforces the investment thesis as we see it.  But, whether the investment thesis is through a Gentiva transaction or through other opportunities in the marketplace, as I referred to before, we just see tremendous opportunities to extend the recovery period, prevent re-hospitalizations and to get on the front side of care for the most critically ill patients in America, chronic patients.  Those patients joining the Medicare program each day through home based models, through medical homes if you will.  And there's an enormous opportunity also as we have a better dialogue about end of life care and the opportunities for palliative care through hospice and palliative care services.  So a logical extension of our service continuum is home based care and home based care models.

We view Gentiva and the other acquisitions in our pipeline today, you know as a great opportunity to really more aggressively grow.  

It's about growth, capital deployment.  And we see lots of opportunities in addition to Gentiva to grow, you know over the next several years.

Gentiva is "just one path" in Paul Diaz's strategic and financially accretive future.

Kindred has $100 to $300 million to put to work in buying home health and hospice providers.  Diaz is excited about Gentiva, but can pivot.  It's but one way for Kindred to grow.

The Ides of September near and with it a Gentiva board decision on the winning bidder looms.  Will debt markets hold for the deal to close?  The Morgan Stanley representative did not speak to that. 

Anonymous (from Gentiva)

Gentivaisms

StrangeTony,

At Gentiva:

1.  We grow by shrinking.
2.  We listen to our employees by not asking for their opinion, ignoring their words when offered anyway and by firing anyone who dares to speak out.
3.  We invest in people who turn over quickly.
4.  We show our value of staff by cutting positions and reducing hours.
5.  We support employees dealing with stressful work by cutting the rate employees earn paid time off, hiding it deep in series of policy updates.
6.  Our employees, our most valuable asset, get no raises most years
7.  We take a long term approach by selling out to the highest bidder
8.  We manage by whim & impulse, delegating blame when things go poorly.
9.  We focus on the big picture by micromanaging.
10.  We prioritize image management over substance.
11.  Our Human Abuse Department is unparalleled and leaves high marks.
12. We provide exceptional service which is a best mediocre.

This leads to the famous quote by Astronomer Carl Sagan:

"One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.”

My site is deep in the bamboozle with layers of charlatan's imposing their distorted will.  I don't think this will end with a buyout.  Charlatans will have new executives/investors to bamboozle.  Meanwhile, due diligence is killing us.

Anonymous (from Gentiva)

Gentiva Insiders to Sell All at Once?

StrangeTony,

The looming sale of Gentiva to Kindred or an anonymous investor will give insiders the chance to profit handsomely from their stock holdings.  Investors expect the impending deal to come in higher than $17,25 per share, the last publicly shared bid by both parties.

Kindred would jettison much of Gentiva's senior management team to achieve cost savings, which explains the cold shoulder CEO Tony Strange and the board have given Kindred since its first paltry offer of $13.  I assume the anonymous investor would keep Gentiva's management team in place.  For this reason insiders are cheering for the white knight.

In this scenario senior leaders and board members could roll their equity into the deal, effectively becoming part owners with the anonymous investor.  If not, they'll have a big payday, get to keep their jobs and have a chance to earn an equity stake in the new company, which I assume will be private.

Gentiva is already highly leveraged, having overpaid and over borrowed for both Odyssey and Harden.   "Due diligence" means conversations with senior management on making the deal work for the buyer.  How much additional debt will Gentiva be saddled with?  How much will the company's interest expense increase?  Will the buyer charge the company millions in deal fees and annual management fees? 

Money to pay interest and fees will need to come from somewhere.  That means more operational cuts for home health agencies and hospices (as if there already hadn't been enough).  Anyone hurt by Gentiva leaders' polishing the company for maximum sale price should give our leaders the feedback they deserve.  Comments anyone on the state of leadership at Gentiva?

Anonymous (from Gentiva)