UnitedHealth Group’s (NYSE: UNH) Optum has made an unsolicited proposal to acquire all of the outstanding shares of Amedisys’ common stock in an all-cash transaction for $100 per share, the latter announced Monday morning.
This could represent a “superior proposal” to Option Care Health’s (Nasdaq: OPCH) proposed deal for Amedisys. Option Care Health and Amedisys agreed last month to combine in a deal that valued Amedisys at $3.6 billion. The two were expected to merge by the back half of 2023.
“On May 27, 2023, the Board determined that the unsolicited proposal received from Optum could reasonably be expected to result in an ‘Amedisys Superior Proposal’ as defined in Amedisys’ merger agreement with Option Care Health,” Amedisys wrote in an SEC filing. “As permitted by the terms of Amedisys’ merger agreement with Option Care Health, Amedisys entered into a confidentiality agreement with Optum on May 30, 2023, and is currently engaging in exploratory discussions with Optum with respect to Optum’s proposal.”
If Optum’s proposal turns out to be more valuable for Amedisys shareholders, Option Care Health may end up losing out.
The Baton Rouge, Louisiana-based Amedisys provides home health, hospice and palliative care services. Overall, its network includes 16,500 employees and 522 care centers across 37 states and the District of Columbia. Contessa Health – a provider of high-acuity care in the home – is also a subsidiary of Amedisys.
Option Care Health is a Bannockburn, Illinois-based infusion services provider. Its network includes 7,500 employees and 4,500 clinicians across all 50 states.
Meanwhile, Optum is UnitedHealth Group’s health care services arm. It closed on a deal for LHC Group – another one of the largest home health providers in the country – in February for $5.4 billion.
Under the current agreement with Option Care Health, Amedisys stockholders would receive 3.0213 shares of Option Care Health stock for each share of Amedisys common stock they hold. That’s equal to $97.38 per Amedisys share, based on Option Care Health’s May 2 closing stock price.
Then, upon closing, Option Care Health stockholders would own approximately 64.5% of the combined company, and Amedisys stockholders would own approximately 35.5%.
The conditions of that merger pact still apply for now, and the Amedisys board has not judged that Optum’s proposal meets the criteria for a superior proposal under the terms of that agreement.
“Amedisys remains bound by the terms of the merger agreement with Option Care Health, and Amedisys’ Board has not determined that Optum’s proposal constitutes a Superior Proposal as defined in the merger agreement with Option Care Health,” the SEC filing reads. “The merger agreement with Option Care Health does not permit Amedisys to terminate the merger agreement in favor of an alternative transaction, or to enter into any agreements with respect to an alternative transaction, other than a confidentiality agreement. Amedisys notes that there can be no assurance that the discussions with Optum will result in a transaction.”
Option Care Health released its own press release Monday regarding the news.
In it, Option Care highlighted its leadership team’s successful track record while underscoring the financial and clinical upside a combination with Amedisys offers.
“Option Care Health’s previously announced definitive merger agreement with Amedisys delivers significant value to Amedisys and Option Care Health stockholders, a high degree of certainty in obtaining the required regulatory approvals due to the complementary nature of the parties’ businesses, and benefits patients, providers, payers, and care teams,” the company said in a statement. “Our compelling all-stock transaction, expected to close in the second half of 2023, allows stockholders of both companies to participate in the upside of the combined company, which will be a differentiated leader in home health and alternate site care with unmatched scale and a unique cash flow profile.”
Option Care Health noted that the combined company is expected to generate more than $500 million in annual cash flow by 2025, more than $1 billion in combined adjusted EBITDA by 2027 and more than $9 billion in combined revenue by that same year.
“We believe that as a combined company, Option Care Health and Amedisys will be well positioned to meet the growing demand for personalized care in the home and alternative sites,” the statement read.
What’s in it for Optum
UnitedHealth Group sees itself as on the forefront of two health care trends: the shift to value-based care in the U.S., and also the shift from facility-based care to home-based care.
“How you move care to home, [that’s] really important, and that’s going to be a big play in the future,” UnitedHealth Group CEO Andrew Witty said last week during the Bernstein 39th Annual Strategic Decisions Conference. “I think the COVID pandemic created a stimulus that people want to be out of big institutions for as much of their life as they possibly can be. How we can manage folks at home, how we can help them get good care at home, that’s going to be an important element of building up [our] capabilities.”
Witty called out the LHC Group deal as a “key step in terms of capital deployment in that area,” and further reiterated that at-home care capabilities are a pillar of the company’s future strategy on the Optum side.
The LHC Group move was a first big step. It is one of the largest home health providers in the country. However, at the same time, the home health market is fragmented enough that no one provider likely has the scale that Optum is eventually looking to have in the home.
Based in Lafayette, Louisiana, LHC Group provides home health, hospice and home- and community-based care in 37 states and the District of Columbia. It has 527 total home health locations and more than 400 hospital partnerships.
Together, Amedisys and LHC Group would give Optum over 1,000 care centers. They each have relatively similar footprints, with strong density in the Southeast and Northeast, with decent density in the Central U.S. and West Coast.
Even so, each can undoubtedly reach areas currently that the other can’t.
“We’re still very young in terms of where we’re heading [on the health care services side],” Dirk McMahon, president and COO of UnitedHealth Group, said during last week’s investor presentation. “What you’ve been seeing over the last five years or so is an expansion in the modalities – care in the home, behavioral health – where we can better integrate with the practice base that we have now to provide a more seamless experience for patients.”
What comes next
Option Care Health’s vision to create an “end-to-end” health care continuum is in jeopardy.
But even if shareholders see more value in the Optum proposal, there is likely to be more regulatory scrutiny to that potential deal after the LHC Group acquisition.
“While we see the current Optum proposal as representing better overall value for AMED shareholders, this proposed deal could attract more heightened regulatory scrutiny given that Optum also recently acquired LHC Group,” Scott Fidel, managing director at Stephens Inc., wrote in an analyst note Monday.
Yet a combined LHC Group-Amedisys home health business would still only account for about 10% of the highly fragmented home health market.
The breakup fee between Amedisys and Option Care Health – $106 million – makes it more of a possibility that Optum could pull Amedisys away.
“That a payer came over the top for Amedisys is not overly surprising news given the relatively modest breakup fee ($106 million) and the ongoing run on home-based labor being made by payers,” William Blair Partner Matt Larew also wrote in an analyst note Monday. “That it is Optum is somewhat surprising given that it closed the acquisition of LHC Group earlier this year, and Amedisys and LHC Group were the two largest remaining independent home health businesses.”
For now, Option Care Health is still hoping to close its merger with Amedisys by the end of this year.