Kindred Healthcare Inc. (KND said Friday, June 30, it has inked a deal to sell its skilled nursing facility business for $700 million in cash to a joint venture led by alternative asset manager BlueMountain Capital Management LLC.
The divestiture comes after Kindred in November of last year announced its decision to exit its skilled nursing facility business as both an owner and an operator.
Louisville, Ky.-based Kindred is selling 89 nursing centers with 11,308 licensed beds and seven assisted living facilities with 380 licensed beds across 18 states to the JV called BM Eagle Holdings LLC.
Thirty-six of the nursing facilities are leased from real estate investment trust Ventas Inc. (VTR - Get Report) . Kindred on November 14, 2016 announced an agreement with Ventas that gives Kindred the option to buy the real estate for the 36 facilities leased from Ventas for $700 million, a deal that facilitates Kindred's exit from the skilled nursing facility business.
Kindred said on June 30 that as it closes on the sale of the Ventas properties to BlueMountain, Kindred will pay Ventas the allocable portion of the $700 million purchase price for the Ventas properties and Ventas will convey the real estate for the applicable Ventas property to BlueMountain or its designee.
Shares of Kindred closed Monday at $11.70, up 5 cents. The company has a market capitalization of $1.01 billion.
Kindred said it expects that the cash proceeds, anticipated working capital liquidation, tax benefits, retained assets and other items will result in approximate total value to Kindred of $910 million after subtracting estimated transaction and severance costs.
"The exit and sale of our nursing center operations significantly enhances shareholder value, shifts attention to our higher margin and faster growing businesses, and advances our efforts to transform Kindred's strategy," said Kindred president and CEO Benjamin A. Breier in the announcement. "Upon completion of this transaction, we believe Kindred's capital structure, leverage profile and operating performance will all be markedly improved."
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The initial closing of the deal is expected to occur in the third quarter, with the entire transaction expected to be completed by year-end.
The divestiture is expected to boost Kindred's annual cash flow by $20 million to $30 million as the company reduces annual rent obligations by $88 million and annual capital expenditures by $30 million, while eliminating $70 million to $80 million of skilled nursing facility overhead and $18 million of annual cash disbursements related to noncontrolling interests, according to Kindred chief financial officer Stephen Farber in the news release.
Kindred's other businesses include Kindred at Home, which offers home health, hospice and community care services; the hospital division, which runs transitional care hospitals and the rehabilitation services unit, which operates inpatient rehabilitation facilities and hospital-based acute rehabilitation units.
Guggenheim Securities LLC provided Kindred with financial advice. Polsinelli PC served as legal adviser and Cleary Gottlieb Steen & Hamilton LLP served as special counsel to Kindred.
Guggenheim and Cleary advised Kindred in 2012 when it bought Gentiva Health Services Inc. for $1.8 billion, and Cleary advised the company in 2013 when it sold 14 facilities to Vibra Healthcare LLC. The law firm also advised the company in 2011 when it paid $1.3 billion for RehabCare Group Inc.
-- David Marcus contributed to this article
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Meanwhile, over on Real Money, Jonathan Heller writes that Monomoy Capital Partners, which is buying West Marine Inc. (WMAR) for $12.97 per share in a deal announced June 29, "is getting a heck of a bargain at that price."