Large shareholder sues to block sale of Kindred Healthcare to Humana, private equity
A large shareholder of Louisville-based Kindred Healthcare filed a lawsuit Thursday seeking to block the sale of the company to Humana Inc. and a pair of private equity firms.
LOUISVILLE, Ky. (WDRB) -- A large shareholder of Louisville-based Kindred Healthcare filed a lawsuit Thursday seeking to block the sale of the company to Humana Inc. and a pair of private equity firms.
Funds affiliated with New York-based Brigade Capital Management filed the lawsuit in state court in Delaware, according to a U.S. Securities and Exchange Commission filing Friday.
In a statement, Kindred said the Brigade lawsuit is "entirely without merit" and that the sale remains on track to close this summer.
Brigade said in the SEC filing that it has accused Kindred’s board of breaching its fiduciary duty to shareholders in approving a sale that, Brigade contends, undervalues the company. A copy of the lawsuit could not be immediately obtained.
“The Brigade Funds intend to vigorously prosecute the Action to protect their investors from the consequences of the Board's breach of fiduciary duties if the Merger is allowed to close,” Brigade said in the SEC filing, adding that it has asked a judge to expedite the lawsuit.
The move comes about three weeks ahead of a March 29 vote by Kindred shareholders on whether to approve the sale, in which Humana and the private equity firms would pay about $780 million for Kindred, or $9 per share.
The company said the sale is a "compelling all-cash transaction" and the result of "a thorough, 18-month process" by its board to maximize the company's value.
Brigade and its affiliated funds control 5.7 percent of Kindred’s stock, according to the filing.
As of Kindred's most recent annual proxy statement filed last April, there were only four investors that held more than 5 percent of the company's stock. Brigade was not among them at the time.
Brigade made its opposition to the deal public on Dec. 27, about a week following the announcement of the merger.
“Brigade is disappointed that Kindred’s management and board have chosen to move forward with such a poor transaction,” Donald E. Morgan, III, Brigade’s managing member and general partner, wrote in a letter to the company.
Morgan called the $9-per-share price “grossly inadequate” and “fundamentally inconsistent with management’s own statements regarding (Kindred's) positive outlook.”
Kindred's shares currently trade for about $9.30. To swallow up a publicly traded company, the acquiring company usually pays a significant premium over the target company's trading price.
But Kindred has said the $9 per share price is a 27 percent premium over the average price of its shares in the three months leading up to Dec. 15, when the Wall Street Journal first reported that the sale was in the works.
Brigade Capital Management General Counsel Aaron Daniels declined to comment on Friday.