Going ahead with its scheduled program, Gentiva Health Services Inc. (GTIV) completed the acquisition of Odyssey HealthCare Inc. (ODSY) on Tuesday for about $1.0 billion. This constituted an all cash transaction of about 370.4 million for Odyssey’s common stock at $27 per share. Gentiva reached a definitive agreement for the purchase in May 2010.
In order to fund the acquisition, Gentiva vended off its 4-year senior notes worth $325 million in the 144A private placement market on August 12. The amount of the notes offering was increased from $305 million planned initially.
These notes carried an issue price of $100.00 to mature on September 1, 2018. These non-callable notes are projected to have a spread of 928 basis points over U.S. Treasuries, bearing a fixed interest rate of 11.50% and yield rate of 11.50%. Interest on the notes is payable semi-annually, in equal installments, commencing March 1, 2011. The settlement is dated August 17, 2010. Gentiva’s notes carry a rating of “B2” and “B-” from Moody’s Investor Service of Moody’s Corp. (MCO) and Standards & Poor’s, respectively.
Gentiva appointed Barclays plc (BCS), BofA Merrill Lynch of Bank of America Corp. (BAC) and SunTrust Bank Inc. (STI) as joint book-runners for the sale.
In addition, Gentiva utilized its available cash along with the proceeds from a new secured credit facility worth approximately $780 million to fund the Odyssey acquisition.
Texas-based Odyssey is a premier hospice care provider in the U.S. Through this acquisition, Gentiva expects to become a leading hospice care provider in the U.S. as the home health and hospice care operations of both the firms fairly complement each other without over-lapping their operations geographically. Gentiva projects a collective average daily patient census of approximately 14,000 by expanding its operations in about 30 states.
Gentiva also expects to introduce its strategy to bring its innovative specialty home health programs and other Gentiva services to patients by broadening its scope of operations with the purchase of Odyssey. This combined firm in turn is projected to earn about $1.8 billion in annual revenue, dramatically up from $1.15 billion earned by Gentiva alone in 2009.
Further, management expects 60% of this revenue to come from home healthcare revenue with the remainder from hospice care. Going ahead, Gentiva anticipates the impact of the deal to be accretive to the operating earnings within the first year of incorporation, although certain one-time charges are also projected.
Of late, the health care providing industry has been triggered by a flood of mergers and acquisitions activity between home health and hospice providers. In May 2010, a peer of Gentiva, LHC Group Inc. bought Idaho Home Health and Hospice for an undisclosed amount, while Gentiva itself acquired United Home to expand its operations in Louisiana.
Overall, the brilliant performance of Gentiva in the second quarter, driven by higher volumes and revenue from its home health and hospice operations, will also pave way for further acquisitions in future.
Gentiva’s diversified product portfolio pleases us and we believe the company’s inorganic growth performance has been exceptional, although its growth-by-acquisition strategy carries some inherent risk of increasing debt and its related costs. Nevertheless, Gentiva’s history of generating significant leverage and modestly strong fundamentals make us optimistic with regard to the Odyssey acquisition.
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