Brookdale Senior Living (NYSE: BKD), one of the largest home health providers in the United States, is under pressure again from an activist shareholder.
The shareholder—Stamford, Connecticut-based investment management firm Land & Buildings—is pressing Brookdale to share more information about an ongoing strategic review process and says the company should consider offers that might seem “disappointing.”
Brentwood, Tennessee-based Brookdale became the largest operator of private-pay senior living communities in the country after acquiring rival Emeritus Corp. in 2014. However, Brookdale was beset by challenges integrating the Emeritus business, and in December 2016, Land & Buildings urged the company to consider selling off its sizeable real estate holdings. Shortly thereafter, rumors emerged that Brookdale was negotiating to be acquired, in whole or in part, by a private equity buyer. Land & Buildings expressed support for these negotiations.
Now, the firm appears to be growing impatient.
“It has been more than a year since Brookdale announced […] the beginning of a strategic review process,” Land & Buildings founder and Chief Investment Officer Jonathan Litt wrote in a public letter issued last Friday. “As such, Land & Buildings is hopeful that the Company will be fully transparent with shareholders and provide a material update on this process when they hold their fourth quarter 2017 earnings call.”
Litt is concerned that Brookdale’s value is being diminished as senior housing industry headwinds grow stiffer, due to last year’s hurricanes and wildfires, a severe flu season, and labor pressures related to new competition. Even a potentially “disappointing” Brookdale buyout offer, such as a 20% premium to the current share price, should be considered as possibly viable, the letter suggested.
Brookdale declined to comment on this most recent Land & Buildings letter.
The structure of a potential Brookdale takeout, including the fate of the home health and hospice businesses, remains a big question mark.
Brookdale itself has been positioning the ancillary services as valuable parts of the company, touting the home health division as a “competitive differentiator” at this time last year. When rumors of a buyout first began to spread in January 2017, one equity analyst pegged the value of the ancillary services at between $459 million and $687 million, depending on the multiple that Brookdale could achieve in a deal.
However, like senior living, the home health sector is also facing labor pressures as well as Medicare reimbursement uncertainty.
Another giant post-acute care provider, Louisville-based Kindred Healthcare (NYSE: KND), recently completed an 18-month strategic review process by forging a deal to be split up and acquired by two private equity firms and insurance behemoth Humana (NYSE: HUM). That deal, announced in December 2017, clocked in at $9 per share, which was about a 27% premium to Kindred’s 90-day volume weighted average price.
Under terms of the deal, Humana will have a 40% stake in Kindred’s home health business, with the two private equity firms owning the remainder.
Written by Tim Mullaney