Humana will divest its majority stake in Kindred at Home's hospice business to investment firm Clayton, Dubilier & Rice.
As part of the deal, which was announced Thursday, Humana will sell off a 60% stake in KAH Hospice for $2.8 billion in cash, which reflects an enterprise valuation of $3.4 billion and twelve times the division's forecasted earnings before interest, income taxes, depreciation and amortization (EBITDA) for this year.
Humana said a year ago when it bought out the majority stake in Kindred at Home that it planned to divest the hospice arm. The insurer believes that it can deliver strong patient outcomes in hospice care without owning KAH Hospice outright, Chief Financial Officer Susan Diamond said in a statement.
“We explored a broad range of alternatives and believe this transaction best allows Humana to divest majority ownership of these non-core businesses today, while still maintaining a strategic minority interest through our remaining stake," Diamond said.
"With CD&R’s established physician relationships, value-based care expertise, and record of providing strategic capital to a wide range of businesses, we are certain that these divisions are well-positioned for success under the joint ownership of Humana and CD&R," she added.
The deal is expected to close in the third quarter of this year, and is pending regulatory approvals. Once it closes, KAH Hospice will be reconfigured as a standalone business, and David Causby, the current president and CEO of Kindred at Home's hospice and personal care divisions, will continue to lead the business.
Humana intends to use the funds from the deal to pay down debt and repurchase shares, and does not expect the sale to have a material impact on its earnings for this year.
“We are excited by the new strategic partnership structure with Humana and look forward to working closely with CD&R to pursue growth that is centered on improved access, equity and quality of care across an expanded group of patients,” said Causby in a statement. “We share a common set of values and, like the CD&R team, are focused on driving quality care for patients and continuing to ensure that our company remains an employer of choice for health care professionals.”