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Kindred Healthcare buying RehabCare for $900M

Tue, 02/08/2011 - 3:45am
MARLEY SEAMAN - AP Health Writer - Associated Press

Kindred Healthcare, a provider of acute care hospital and inpatient rehabilitation services, said Tuesday it has agreed to buy rival RehabCare Group for about $900 million in cash and stock.

The deal would combine Kindred's contract rehabilitation service business, which has about 550 customers, with that of RehabCare, which has about 1,250. Both companies operate long-term acute care hospitals and inpatient rehabilitation facilities.

The combined company will have 118 long term acute care hospitals, 226 nursing and rehabilitation centers, and 121 inpatient rehabilitation facilities. It will do business in 46 states.

The boards of both companies approved the deal. It also requires approval by shareholders of the two companies and regulatory clearance. The companies expect the sale to close around June 30.

Kindred said it expects $25 million in savings in the first year after the deal closes, and $40 million within two years. The companies said two members of RehabCare's board of directors will join the Kindred board after the deal closes.

Kindred Healthcare Inc., based in Louisville, Ky., agreed to pay about $35 per share for St. Louis-based RehabCare Group Inc., a 37.4 percent premium over Monday's closing price of $25.47. It will pay $26 in cash and 0.471 Kindred shares for each RehabCare share.

Kindred will issue 12 million new shares of its stock as part of the deal, and it will assume about $400 million in RehabCare debt.

RehabCare shares have traded between $15.88 and $31.93 over the last year. Kindred shares closed at $19.48 Monday, and jumped $1.51, or 7.8 percent, to $20.99 in pre-market trading.

Both companies reported their fourth-quarter results on Tuesday.

Kindred said its net income grew 6 percent to $20.4 million, or 52 cents per share. Its revenue increased 6 percent to $1.14 billion, as hospital revenue rose 5 percent, nursing and rehabilitation center revenue rose 4 percent, and revenue from the Peoplefirst rehabilitation staffing and management business climbed 21 percent. Its results surpassed Wall Street's expectations

RehabCare said its net income rose 9 percent to $17.1 million, or 69 cents per share. Its revenue edged up 1 percent to $339.3 million. The company said its skilled nursing service business was hurt by regulatory changes, but results from the hospital business were strong.

Kindred reported $4.36 billion in revenue in 2010, compared to $1.33 billion for RehabCare, and Kindred expects the deal to add to its profit immediately.

If the companies had combined Jan. 1, they said their total 2011 profit would be about $1.95 to $2.15 per share, with revenue of about $6.2 billion.

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