Louisville, Kentucky's Kindred Healthcare ( (KND) ) announced Thursday it will acquire Gentiva Health Services ( (GTIV) ) for $1.8 billion, five months after initially proposing to acquire the healthcare provider.

The deal, which was the result of due diligence after Kindred inked a confidentiality agreement over the summer, came after secondary bidder Atlanta-based Formation Capital LLC dropped out of the process, according to sources.

Bids for Gentiva, also of Atlanta, were due in late September, sources said.

Kindred will acquire all of Gentiva's outstanding shares for $19.50 in a combination of cash and stock.

The company's proposal in May was to acquire the company for $14 per share — a deal that would have been valued at $1.6 billion.

Gentiva had argued that the initial deal undervalued the company.

Kindred issued a number of higher bids over the course of the summer.

Under the terms of the agreement, Gentiva shareholders will receive $14.50 per share in cash and $5 of Kindred common stock. The transaction assumes all net debt. The deal is expected to close in the first quarter of 2015.

Kindred CEO Paul Diaz said during a Thursday morning conference call that the deal solidifies the combined company as the fourth-largest healthcare employer in the country and enhances its position as a post-acute provider.

With the Gentiva acquisition, the combined companies will have over 700 home health, hospice and community care sites in 41 states. It is expected to have annual revenues of $7.1 billion.

The deal will be financed through a bridge loan from Citigroup Inc. and JPMorgan Chase & Co., as well as the issuance of $200 million to $300 million in 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.

Kindred chief operation officer Benjamin Breier noted on the call that the deal will make the combined company the No. 1 operator of transitional care, home health, hospitals and rehab services. The combined companies will expand advanced managed care, hospital and acute-care relationships, with half of all revenue from Kindred coming from non-inpatient settings.

A team at Citi and Guggenheim Securities LLC's Barry Blake provided financial advice to Kindred.

The company retained Cleary Gottlieb Steen & Hamilton LLP's Benet O'Reilly as legal counsel and Dennis Friedman, Barbara Becker and Andrew Kaplan of Gibson, Dunn & Crutcher LLP as special counsel.

Gentiva retained a Barclays plc team including Patrick McMullan, Jed Brody and Marcus Ricciani, as well as a team from Edge Healthcare Partners LLC including J. Todd Watkins, Bryan Pope and others. Gentiva tapped Dennis J. Block and Gary E. Synder at Greenberg Traurig LLP for legal advice.