Amedisys Inc. (NASDAQ: AMED) has received an unsolicited proposal from the UnitedHealth Group (NYSE: UNH) subsidiary Optum to acquire all outstanding shares of the home health and hospice provider’s stock.
Amedisys indicated in a filing with the U.S. Securities and Exchange Commission (SEC) that Optum has proposed an all-cash transaction at $100 per share. This, according to the filing, could represent a “superior proposal” compared to the company’s pending $3.6 billion deal with Option Care Health (NASDAQ: OPCH).
“On May 27, 2023, the Board determined that the unsolicited proposal received from Optum could reasonably be expected to result in an ‘Amedisys Superior Proposal’ as defined in Amedisys’ merger agreement with Option Care Health,” Amedisys wrote in the SEC filing.
In a nutshell, Amedisys may have the option of accepting Optum’s offer if it proves to be a better value for shareholders over the potential Option Care transaction. But if the deal were terminated under that scenario, Amedisys may be required to pay Option Care a fee of $106 million.
The merger agreement would be terminated if either company’s respective shareholders vote against it, or if the transaction is completed by Feb. 5, 2024.
“As permitted by the terms of Amedisys’ merger agreement with Option Care Health, Amedisys entered into a confidentiality agreement with Optum on May 30, 2023, and is currently engaging in exploratory discussions with Optum with respect to Optum’s proposal,” the SEC filing continued.
Under its current merger agreement, Amedisys stockholders would receive 3.0213 shares of Option Care Health common stock for each share of Amedisys common stock they hold at the closing of the transaction. This is equivalent to $97.38 per Amedisys share, based on Option Care Health’s May 2 closing stock price.
This represents a premium of nearly 26% for Amedisys stockholders. Upon closing, which is expected to occur in the second half of the year, Option Care Health stockholders would own approximately 64.5% of the combined company, and Amedisys stockholders would own approximately 35.5%.
Option Care on Monday issued its own statement in light of the Optum news, emphasizing the strategic fit of an Amedisys merger – and the value it would bring to both companies’ shareholders.
“We believe that as a combined company, Option Care Health and Amedisys will be well positioned to meet the growing demand for personalized care in the home and alternative sites,” the statement noted. “The Option Care Health management team has a strong track record of operational execution and has delivered total shareholder returns of more than 130% since August 2019, when Option Care Health closed our acquisition of BioScrip.”
Option Care projects that a combination with Amedisys would yield about $1 billion in combined adjusted EBITDA by 2027 and more than $9 billion in combined revenues by that year.
“Amedisys remains bound by the terms of the merger agreement with Option Care Health, and Amedisys’ Board has not determined that Optum’s proposal constitutes a Superior Proposal as defined in the merger agreement with Option Care Health,” the Amedisys SEC filing reads. “The merger agreement with Option Care Health does not permit Amedisys to terminate the merger agreement in favor of an alternative transaction, or to enter into any agreements with respect to an alternative transaction, other than a confidentiality agreement. Amedisys notes that there can be no assurance that the discussions with Optum will result in a transaction.”
This marks Optum’s second attempt to purchase a massive home health and hospice company.
The UnitedHealth Group subsidiary closed its $5.4 billion acquisition of LHC Group this past February.
“That a payer came over the top for Amedisys is not overly surprising news given the relatively modest breakup fee ($106 million) and the ongoing run on home-based labor being made by payers,” William Blair analyst Matt Larew wrote in a Monday note. “That it is Optum is somewhat surprising given that it closed the acquisition of LHC Group earlier this year and Amedisys and LHC Group were the two largest remaining independent home health businesses.”
Kindred’s legacy home health business, now part of Humana Inc. (NYSE: HUM) under the CenterWell Home Health brand, is the only home health asset larger than either Amedisys or LHC Group. The private equity-backed AccentCare and Enhabit Inc. (NYSE: EHAB) are also home health providers of serious scale.
That deal went through a lengthy review process, with the Federal Trade Commission (FTC) thoroughly looking under the hood to ensure antitrust compliance. At first blush, the possibility of Optum acquiring Amedisys and LHC Group may seem like a red flag, but analysts feel confident that such a transaction would ultimately clear a market-competitiveness review.
A combined LHC Group-Amedisys home health business would still only account for about 10% of the highly fragmented home health market. It would account for an even smaller share of the overall hospice market.
An “objective, market-level analysis of market shares points to an approvable transaction,” Jefferies analysts wrote in a Monday note.
“Once investors get past the FTC risk associated with UNH’s bid, its all-cash nature and valuation that puts it above the nominal valuation of the OPCH offer at the time of that announcement, making UNH’s offer compelling, though deal completion will likely take time,” the note continued.
As of 2021, the top five home health providers only represented about 20.3% of the U.S. market share, with the top 10 representing roughly 25% of the market.
Additional contributions to this story by Robert Holly