Kindred Healthcare, Inc. ("Kindred" or the "Company") and Gentiva Health Services, Inc. ("Gentiva") today announced that the companies have entered into a definitive merger agreement under which Kindred will acquire all of the outstanding shares of Gentiva common stock for $19.50 per share in a combination of cash and stock. The agreement was unanimously approved by the boards of directors of both companies.

Under the terms of the agreement, Gentiva shareholders will receive $14.50 per share in cash and $5.00 of Kindred common stock (which equates to 0.257 shares of Kindred common stock based upon an agreed upon fixed exchange ratio). The transaction is valued at $1.8 billion, including the assumption of net debt. The companies expect the closing of the transaction to occur in the first quarter of 2015.

The combination of Kindred and Gentiva will further enhance Kindred's industry leading position as the Nation's premier post-acute and rehabilitation services provider and make Kindred at Home the largest and most geographically diversified Home Health and Hospice organization in the United States. The combined company will:

• Serve more than one million patients per year;
• Operate in 47 states;
• Employ approximately 109,000 individuals, making it the 78th largest private employer and the
• 4th largest healthcare employer in the United States;
• Be the largest operator of long-term acute care hospitals and inpatient rehabilitation facilities in the United States, as well as the Nation's largest provider of rehabilitation, home health and hospice services and one of the leading sub-acute and skilled nursing providers;
• Deliver pro forma annual revenues of approximately $7.1 billion; and
• Generate pro forma operating income (EBITDAR), including expected cost synergies, of $1.0 billion.

Strategic Benefits of the Combination

• Positions Kindred to Help Shape the American Healthcare Delivery System: Through Kindred's Continue the Care strategy, the combined company will deliver patient-centered, coordinated care across the full continuum - from the hospital to the home. This integrated model is preferred by consumers as well as payors, including Affordable Care Organizations and Managed Care Organizations, as it improves quality, clinical outcomes and patient satisfaction while reducing costs.
• Builds on Kindred's Industry Leadership: The combined company will advance Kindred's leadership in integrated post-acute care, including long-term acute care, rehabilitation services, skilled nursing, home health and hospice care.
• Enhances Scale to Address Increasing Demand for Integrated Health Care and Expands Presence in Kindred's Integrated Care Markets: The Gentiva footprint overlaps in 20 of 23 of Kindred's current and targeted Integrated Care Markets, which are among the top 30 Metropolitan Statistical Areas in the United States. Kindred expects this will create significant benefits for patients from improved care transitions and potential revenue synergies for the Company from referrals across the combined care delivery platform.

   

• Greater Employee Opportunity: This combination creates an even stronger workforce by uniting the talented employees of Kindred and Gentiva, who share a commitment to high-quality and compassionate patient care. Kindred and Gentiva employees will benefit from being part of a stronger, larger company and the greater career and professional development opportunities created by the transaction.

Financial Benefits of the Combination

• Significantly Increases Size and Scale, Diversifies Revenue Mix, and Enhances Revenue and Margin Growth Profiles:On a pro forma basis, the combined company is expected to generate annual revenues of approximately $7.1 billion and EBITDAR, including expected synergies, of $1.0 billion. Kindred's revenue and margin growth profiles will also be significantly enhanced by the combination.
• Immediately and Significantly Accretive: Kindred expects the acquisition of Gentiva will be immediately and significantly accretive to earnings and operating cash flows, exclusive of transaction and integration costs. Kindred expects the acquisition to be approximately $0.40 to $0.60 accretive to pro forma earnings, and pro forma operating cash flows of $350 million to $400 million (before capital expenditures, dividends and changes in working capital) , both on a run rate basis, once Gentiva is fully integrated and expected synergies are fully realized in the second full year following the closing.  On this same basis, following the combined company's expected annual maintenance capital expenditures of $120 million to $130 million, Kindred expects pro forma cash flows (before growth capital expenditures, dividends and changes in working capital) of $230 million to $270 million.
• Substantial Cost and Revenue Synergies: Kindred has identified approximately $70 million of annual cost and operating synergies and expects to achieve the full run rate within two years of closing, of which approximately $35 million is expected to be achieved in the first year following the closing. Kindred expects the majority of cost synergies to be achieved through combining information technology functions, merging supply chains and eliminating redundant public company expenses. In addition, Kindred expects to realize revenue synergies that will improve patient care transitions and choice, and drive volume growth as a result of cross-selling across the combined service platform. Kindred expects annual run rate revenue synergies of more than $60 million over time, with approximately $20 million to $30 million achievable in the first full year following the closing.
• Enhanced Capital Structure, Strong Cash Flow Profile, Commitment to Deleveraging and Maintaining Moderate Leverage Profile: Kindred will maintain a strong balance sheet with significant cash flow and reduced capital expenditures and rent burden, giving it the ability to continue paying a meaningful cash dividend while reducing debt. Kindred expects pro forma adjusted net leverage  will be approximately 5.5x  Adjusted Debt to EBITDAR at closing, and to reduce its outstanding indebtedness to below 5.0x  Adjusted Debt to EBITDAR by the end of the second full year following closing. Kindred reiterates its commitment to a steady-state target leverage profile of 4.5x to 5.0x Adjusted Debt to EBITDAR.

Management Commentary

Paul J. Diaz, Chief Executive Officer of Kindred, said, "Over the last eight weeks, we undertook a robust due diligence process and worked closely and constructively with our counterparts at Gentiva to better understand their operations, financial results and outlook. This process confirmed the compelling strategic rationale and industrial logic of this combination, as well as our belief that this transaction is in the best interests of both companies and our respective shareholders, patients, employees and business partners. This significantly accretive transaction will generate strong operating cash flows that will allow Kindred to quickly delever and support future growth and return of capital to shareholders. We look forward to bringing our two companies together to advance our strategy, mission and shared values."

Rodney D. Windley, Executive Chairman of the Board of Gentiva, said, "This merger represents a successful conclusion to a process in which, from the beginning, we have focused on maximizing value for Gentiva's shareholders consistent with our Board's responsibilities while ensuring the future success of the company. The cash and equity structure of the transaction, which represents a 128% premium to Gentiva shares since Kindred's offer became public, provides Gentiva shareholders with immediate value and the opportunity to participate in the potential growth and value creation of the combined company by virtue of their continued investment in Kindred stock. On behalf of our Board and management team, I would like to express my deep appreciation to our employees across the country for their dedication and commitment to our patients and the families that we serve each and every day."

Benjamin A. Breier, President and Chief Operating Officer of the Company, said, "With Gentiva, we will expand the breadth of our offerings and our geographic footprint and enhance our presence in Kindred's Integrated Care Markets to drive more efficient and cost-effective coordinated care across more communities. This combination strengthens our ability to serve patients across the full continuum of care - from the hospital to the home. Together we will create the industry leading provider of home based patient-centered care, solidifying our position at the forefront of the care delivery model that is preferred by patients and payors. As a combined company, we will continue to grow and help shape the American Healthcare Delivery System."

Mr. Breier added, "The combined company has tremendous growth potential and will have increased financial flexibility to invest in clinical programs, information technology and infrastructure to advance our mission of promoting healing, providing hope, preserving dignity and producing value for every constituent we serve. Importantly, both companies' employees share a similar focus on patient service, and we anticipate a seamless integration. Upon closing, the combined company will embrace the best practices of both organizations, which we expect will create exciting professional development and career opportunities for many employees. We look forward to welcoming the Gentiva team to the Kindred family and to making even greater strides in clinical innovation and excellence."

Tony Strange, Chief Executive Officer of Gentiva, said, "By combining Gentiva and Kindred, we have solidified the importance of home care in the post-acute care continuum of tomorrow. Kindred and Gentiva will create the largest provider of Integrated Care in America. The combined company has tremendous growth potential and will give Gentiva employees greater opportunities in the future. We look forward to working together with Kindred to ensure a seamless transition."

Financing Details

Kindred has obtained committed financing from Citi and J.P. Morgan in connection with the pending transaction. Subject to market and other conditions, the Company expects to finance the acquisition of Gentiva and associated costs through the issuance of $200 million to $300 million of common stock and mandatory convertible equity securities and $1.3 billion to $1.4 billion of unsecured notes prior to the closing of the acquisition.  The Company expects to fund the remaining amounts through its existing line of credit.

Following completion of the transaction, Kindred expects to have approximately 85 million fully diluted shares outstanding, comprised primarily of approximately 64 million shares outstanding today, approximately 10 million shares to be issued to Gentiva as part of the transaction consideration, and approximately nine million to 12 million shares associated with the expected offering of common stock and mandatory convertible equity securities.

Operations and Integration

The combined company will continue to be headquartered in Louisville, Kentucky and will maintain a significant, regional presence in Atlanta, Georgia. The combined home health and hospice businesses will operate within the Kindred at Home division.

Timing and Approvals

The Gentiva acquisition is subject to certain conditions, including the approval by the stockholders of Gentiva.  Kindred and Gentiva have already received clearance for the transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The companies expect to complete the transaction in the first quarter of 2015.