Optum’s all-cash bid for home health and hospice provider Amedisys Monday may be impossible for shareholders to resist, according to home care mergers and acquisition experts.
“It’s awfully hard to turn down a 25% increase in valuation,” Tom Lillis, a partner with Stoneridge Strategic Consulting, told McKnight’s Home Care Daily Pulse. He was referring to the difference between the stock’s closing price of $79 on Friday and the $100 per share offered by Optum.
“It’s definitely a better deal for Amedisys shareholders,” noted Cory Mertz, managing partner with Mertz Taggart, to McKnight’s Home Care Daily Pulse in the mid-afternoon Monday. “The stock is up 15% since the deal was reported, adding about $400 million in shareholder value, just on the announcement.”
The news appeared to take observers, including Mertz and Lillis, by surprise. Last month, Amedisys agreed to merge with Option Care Health, a provider of home and alternate site infusion services. The all-stock transaction values Amedisys at approximately $3.6 billion, including the assumption of net debt.
Besides the terms, there are other reasons to like the Optum offer, said Andre Ulloa, a partner and executive adviser with M&A Healthcare Advisors.
“The reason that the Optum deal is more attractive, other than it being a better price, is because Optum is a larger infusion pharmacy, specialty pharmacy and pharmacy benefits manager (PBM),” he told McKnight’s Home Care Daily Pulse in an email. “This deal will increase the potential deployment of drug therapies throughout OptumRx, and with UnitedHealth Group as the parent company, the expansion of services is virtually limitless. Furthermore, based on how UnitedHealth Group has handled the LHC Group integration, Amedisys should be able to retain control over its brand as it continues its aggressive grow plan.”
Concerns about antitrust violations?
The one cloud hovering over the new proposed deal is possible antitrust scrutiny by the Federal Trade Commission.
“There is definitely risk in this deal, and the stock is priced as such, trading at $91/share versus the $100/share offer from Optum,” Mertz said. “The biggest concern is the FTC and potential antitrust issues. The argument against antitrust is that the combined companies will not have more than 10% of the market.”
Lillis agreed that the FTC likely would take a close look at the deal, as it did for Optum’s acquisition of LHC Group, which closed nearly one year after Optum disclosed it was buying LHC Group.
“I don’t know if it’s [Optum-Amedisys deal] ever going to get through the FTC,” Lillis said. He pointed out that an Optum acquisition of Amedisys might raise the antitrust red flag of “vertical harm.”
“Those are two of the largest providers and if you overlay them on the map there’s significant overlap,” Lillis said.
While a deal would trigger a close look, it is not likely to stop the deal, Ulloa said.
“This transaction may trigger a Hart Scott Rodino (HSR Act) antitrust review, but it will be approved given what has passed in healthcare over the last decade,” he said. “For example, there are clear concentrations of ownership when it comes to pharmacy. If UnitedHealth Group has been able to grow its pharmacy subsidiary (OptumRx) to the third largest in the country, behind CVS Health and Express Scripts, it is unlikely that they are precluded from growing their home health subsidiaries, which represent a small allocation of the home health market.”
Option Care Health response
In the meantime, all eyes are on Option Care Health to see if they make a counteroffer. The company reiterated the strength of its agreement Monday morning.
“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.”
Even if Amedisys moves forward with Optum, “this looks like a win across the board,” Ulloa commented. “The parent company (United) will enhance its market share and increase efficiencies, and the target company (Amedisys) will now have an enormous resource for capital improvements, while maintaining their identity in the public. Even Option Care wins. It’s not too shabby to get over $100 million in break-up fees.”
Editor’s note: Story has been updated to include statement from Option Care Health.