UPDATE 5-Gentiva to buy Odyssey for $1 bln; more deals seen

* Offers Odyssey $27/share — 40 pct premium

* Deal likely to trigger more M&As in the space

* Sees deal adding to adj EPS within first 12 months

* Gentiva to raise $1.1 bln in debt

* Gentiva shares up 15 pct; Odyssey up 37 pct
(Adds details on advisers to deal)

By Anurag Kotoky and Vidya L Nathan

BANGALORE, May 24 (BestGrowthStock) – Gentiva Health Services Inc
(GTIV.O: ) agreed to buy Odyssey HealthCare Inc (ODSY.O: ) in a $1
billion cash deal, which could make it one of the top players
in the U.S. home and hospice care market and spark more
consolidation in the space.

Gentiva is offering $27 per share to Odyssey shareholders,
a premium of 40 percent based on Odyssey’s Friday close.

The deal is likely to trigger a wave of consolidation
between home care and hospice providers, which have similar
operations but are licensed separately.

Home health care companies provide medical services such as
physical therapy in patients’ homes, while hospice providers
take care of terminally ill patients’ health, both on a
physical and an emotional level.

“We believe this transaction could potentially open the
floodgates for further M&A activity between home health and
hospice providers as one industry represents a natural referral
source for the other,” BB&T Capital Markets analyst Eugene
Goldenberg said.

Separately on Monday, Gentiva peer LHC Group Inc (LHCG.O: )
bought Idaho Home Health and Hospice for an undisclosed amount.

Major publicly traded providers with home care operations
include Amedisys Inc (AMED.O: ), LHC Group and Almost Family
(AFAM.O: ), while Chemed Corp (CHE.N: ) is the leading listed
hospice operator.

Following the deal announcement, Odyssey shares were up 37
percent at $26.34, just shy of the offer price. Gentiva shares
gained a little over 12 percent Monday on Nasdaq.

Odyssey shares have consistently outperformed those of
Gentiva in the last two years.
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DEAL BIG PLUS FOR GENTIVA

The deal puts Gentiva behind privately held Vitas Hospice
Services LLC as the second largest provider in the U.S hospice
market, Oppenheimer analyst Michael Wiederhorn said.

“Upon closing, Gentiva will control roughly 6 percent of
the hospice market,” Wiederhorn said.

While the companies’ hospice businesses do not overlap
geographically, Odyssey’s home-health business supplements that
of Gentiva, analysts said.

The deal will create a company with more than $1.8 billion
in annual revenue, Gentiva said in a statement. It sees the
deal adding to its adjusted earnings within the first 12 months
after closing, which is expected in the third quarter of 2010.

Gentiva expects the combined hospice operations to have
combined average daily patient census of about 14,000 and
operations in 30 states.

Analyst Arthur Henderson of Jefferies & Co estimated that
the deal could add about 20 cents a share to Gentiva’s profit
annually. He also sees an additional benefit from lower
corporate overhead costs.

Gentiva said it would raise about $1.1 billion in new debt
financing to fund the deal and to refinance existing debt.

The Atlanta, Georgia-based company had cash and cash
equivalents of $168.9 million as of March 31, while total
long-term debt stood at $232 million and total current
liability $174.7 million.

“This is a four times (debt to EBITDA) leverage ratio after
this deal is done and the company generates pretty good cash
flow. They have reimbursement visibility going forward,”
Jefferies’ Henderson said.

He added that he does not expect any antitrust issues to
hamper the deal from closing. He expects more consolidation in
the space, particularly after the reimbursement rate cut
introduced by healthcare reform.

Edge Healthcare Partners is acting as financial adviser to
Gentiva and Goldman Sachs & Co. is financial adviser to
Odyssey.

BofA Merrill Lynch and Barclays Capital served as advisers
to Gentiva and both firms are serving as lead advisers for the
financing of the transaction.

Stock Market Report
(Reporting by Vidya L Nathan and Anurag Kotoky in Bangalore;
Editing by Kavita Chandran, Aradhana Aravindan)

UPDATE 5-Gentiva to buy Odyssey for $1 bln; more deals seen