Brigade Capital Management, LP (“Brigade”), on behalf of funds managed by it, today responded to yesterday’s press release by Kindred Healthcare, Inc. (NYSE: KND) (“Kindred” or the “Company”) to correct what Brigade views as misleading statements by Kindred. Brigade believes Kindred’s shareholders deserve better and should vote “NO” to the proposed acquisition of the Company by a consortium of Humana, TPG Capital and Welsh, Carson, Anderson & Stowe.
Kindred’s March 27, 2018 press release states that the Delaware Court of Chancery “denied all of the relief Brigade sought” in its application to postpone Thursday’s shareholder vote on the proposed acquisition. This is simply false. The Court granted Brigade’s application that shareholders be given more time to protect their legal rights in connection with this vote. As a result of Brigade’s efforts, voting is Court-ordered to remain open from 10:00 a.m. this Thursday, March 29, 2018, until next Thursday, April 5, 2018. Brigade believes that this ruling provides shareholders with additional time to review important new disclosures (which were inserted by the Company only after Brigade highlighted to the Court material misstatements in prior proxy materials), and vote “NO.”
Kindred shareholders now have an extra week to evaluate the merits of the proposed transaction. We believe that this is a terrible deal for shareholders from any angle. With the extra week, we urge all shareholders to carefully consider that:
- Glass Lewis agrees with Brigade that shareholders should vote “NO.”
- ISS believes that “the acquirer group has the potential to earn a substantial return on its investment” and the “Board could have negotiated a better deal [for] shareholders,” and has highlighted concerns over the sales process and lack of premium being offered to shareholders.
- Serious conflicts of interest were not properly managed. The proxy materials state that a Board member who also happens to be a Senior Advisor to TPG was recused from critical May 24-25 and August 1, 2017 Board meetings, and that this conflicted director “was not given access to materials related to the transaction.” Kindred has now admitted in open court that this conflicted director received and reviewed unredacted copies of minutes from those meetings, in which the transaction was discussed in detail.
- Kindred knew that its conflicted director continued to have access to unredacted Board materials, including the minutes from the meetings post-dating his recusal. Without adequate conflict-management procedures in place, Kindred’s shareholders are forced to rely on self-serving statements from a conflicted director that the process was not tainted.
- Management lowered the projections used for the fairness opinion analyses after the $9 deal price was set and management began negotiating their go-forward employment contracts.
- The Board never – not once – tried to secure a price increase from the buyer group after CMS did not finalize its controversial HHGM reimbursement proposal, removing a significant headwind that was in fact a basis for the buyer group to lower its bid for the Company. We simply cannot get our heads around this fact.
- The $9 per share price does not consider the significantly improved regulatory and tax environment, which Kindred’s own financial advisors illustrate will drive substantial improvement in the Company’s Unleveraged Free Cash Flow.
- Publicly traded market peers have enjoyed meaningful value appreciation since the transaction was announced in December.
- We believe Brigade is not alone with these concerns, and actions speak louder than words. Since mid-December when the transaction was announced, well over 100% of shares outstanding have traded above $9.00, and less than 4% of the overall volume has traded below $9 per share.1
We believe that each of these facts standing alone should be enough to give shareholders pause. Collectively, this set of circumstances demonstrates to us that the Board and management have rolled over and played dead, and seem prepared to shortchange the Company’s existing owners for the benefit of the buyer group and go-forward employment opportunities for members of senior management.
We find these actions impossible to square with the Board’s and senior management’s duties to the owners of the Company, and we believe Kindred’s existing shareholders deserve better. Brigade intends to vote “NO” on the proposed transaction. We believe that the Company is well positioned to create significant incremental value for its customers, employees and shareholders if it can put this disastrous transaction behind it and take advantage of its strong core businesses and improved regulatory environment.
About Brigade Capital Management, LP
Brigade Capital Management, LP is an SEC-registered investment advisor focusing on investing in the global high-yield market and levered equities. The firm was founded in 2006 and is managed by Donald E. Morgan, III, CIO and Managing Partner. The firm is headquartered in New York City with offices in the United Kingdom, Japan and Australia. The firm employs a multi-strategy, multi-asset class investment approach focused on leveraged balance sheets. The core strategies include long/short credit, distressed debt, capital structure arbitrage and levered equities. Brigade Capital Management, LP’s investment process is fundamentally driven, focusing on asset coverage and free cash flow, with an emphasis on capital preservation. The team possesses deep sector expertise throughout the entire leveraged finance market and has extensive experience in capital restructurings and bankruptcy reorganization.
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1 Based on Brigade’s analysis of
share volumes at various prices provided by Bloomberg data services.
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Contacts:
Paul Scarpetta, 212-687-8080
