Why Gentiva Health Services Shares Jumped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Gentiva Health Services , a home health care and hospice services provider, jumped higher by as much as 11% after announcing the acquisition of privately held Harden Healthcare for $408.8 million.
So what: Under the terms of the deal, Gentiva will pay $355 million in cash and the remaining $53.8 million in Gentiva's shares to acquire Harden's home health, hospice, and community care businesses. Harden's long-term care operations will remain with existing Harden shareholders. To fund the transaction, Gentiva plans to raise $855 million in long-term debt and refinance its existing term loans. More importantly, the deal will allow Gentiva to move its reliance away from Medicare-based payments. The combined company, based on a 2012 revenue breakdown, would have received 72% of its revenue from Medicare as opposed to the 86% received by Gentiva alone in 2012.
Now what: It's great that Gentiva is expanding its presence into 13 states where Harden operates, and that it'll be refinancing its debt to more favorable interest rates. But, let's face it; today's story is wholly about the fact that it's moving its reliance away from Medicare revenue. Although Medicare is a supposed "guaranteed payment" from the government, Gentiva and other home health care companies can no longer count on the Centers for Medicare and Medicaid Services to recommend increases in government health payouts under Medicare. In fact, the Patient Protection and Affordable Care Act combined with ongoing federal budget constraints are working to slowly reduce the Medicare payout going forward. The more that Gentiva can diversify its revenue stream away from Medicare, the better its future prospects.
3 more health and wealth ideas
Did you know that your financial health is just as important as your personal health? The Motley Fool's special free report "3 Stocks That Will Help You Retire Rich" names specific investment opportunities that could help you build long-term wealth and help you retire well. The Fool also outlines critical wealth-building strategies that every investor should know. Click here to keep reading.
The article Why Gentiva Health Services Shares Jumped originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.