May 24 (Bloomberg) -- Gentiva Health Services Inc., the second-largest U.S. home-nursing company, agreed to buy Odyssey HealthCare Inc. for about $1 billion to expand in hospice care to 30 states.
The combination will create the biggest U.S. hospice and home health-care provider, with $1.8 billion in annual revenue, the companies said in a statement today. Investors of Dallas-based Odyssey will receive $27 a share, the companies said.
Home-nursing companies, led by Atlanta-based Gentiva and Amedisys Inc., were expected to seek consolidation of the industry, now dominated by thousands of mom-and-pop companies, after the U.S. slashed Medicare reimbursements in the health-care overhaul. Buying Odyssey trims Gentiva’s reliance on Medicare-reimbursed home health care to 60 percent of revenue, from as much as 85 percent, said Sheryl Skolnick, an analyst at CRT Capital Group LLC in Stamford, Connecticut.
“This deal is a game-changing transaction,” Skolnick said in an interview.
Gentiva gained $3.38, or 13 percent, to close at $29.17 a share in Nasdaq Stock Market composite trading. Its Baton Rouge, Louisiana, competitor Amedisys declined 39 cents, or less than a percent, to $47.77. Odyssey jumped $7.46, or 39 percent, to $26.75.
“The combination of the two companies clearly positions us as a leader in both home health and hospice care” in the U.S., Gentiva Chief Executive Officer Tony Strange said in the statement.
Amedisys, Gentiva, LHC Group Inc. and Almost Family Inc. controlled about 12 percent of the market, Michael Wiederhorn, an analyst at Oppenheimer & Co. in New York, said in January.
Gentiva’s purchase was an effort to diversify away from being so dependent on Medicare reimbursements, which are to be slashed by $40 billion over the next 10 years in the federal health overhaul in April, Skolnick said. The federal plan covering the elderly and disabled paid providers $17 billion to treat 3.4 million home-bound patients last year, according to the National Association for Home Care & Hospice, based in Washington.
“For an industry with only about $17 billion in revenue a year, that was a big cut,” Skolnick said. “It’s also front end loaded so the bigger cuts come early.”
Gentiva will lose 3 to 4 percent of its revenue in 2011 because of the lower federal reimbursements, Skolnick said.
There is an overlap in the two companies’ field operations as well as a duplication of the customer base for home health and hospice care, Strange said. The merged company will be able to capitalize on that, he said.
“In most of the places where they have hospice care, we offer home health care,” Strange said today on a conference call.
The transaction is expected to close in the third quarter, Strange said. Gentiva will become the largest hospice provider, operating with a daily census of about 14,000 patients, he said.
The company will see additional cash from the transaction within 12 months after the closing, according to the statement. Gentiva will take on about $1.1 billion in debt to fund the purchase and refinance existing debt.
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