The Final Push For Amedisys As UnitedHealth Awaits Regulatory Clearance

Summary:

• Amedisys, Inc. is being acquired by UnitedHealth for $3.3 billion, pending DOJ approval, with the stock currently trading below the offer price.
• The DOJ is scrutinizing the merger due to concerns about potential price hikes and reduced competition in home healthcare.
• Oregon Health Authority is also reviewing the deal, with mixed reactions from local groups about its impact on healthcare quality and affordability.
• If the merger fails, Amedisys stock could drop to $74, but a $144 million break-up fee from UnitedHealth offers some downside protection.

Company Overview

Amedisys, Inc. (NASDAQ: NASDAQ:AMED), founded back in 1982 and based in Baton Rouge, Louisiana, has firmly positioned itself as a leader in home healthcare. They specialize in services like home health care (basically medical care at home), hospice for end-of-life care, and high-acuity care, reaching more than 465,000 patients each year across 37 states and D.C.

In June 2023, Amedisys decided to merge with UnitedHealth Group’s Optum unit in a $3.3 billion deal at $101 per share. The whole idea is to give UnitedHealth Group (NYSE: NYSE:UNH) a bit more muscle in the home health department, expanding its presence in the market and putting it in a fine position to reach even more front doors across America.

Regulatory Approval Pending

However, the deal isn’t finalized yet because it still needs the official thumbs-up from the U.S. Department of Justice (DOJ). Back in August 2023, the DOJ asked for more information to look deeper into the merger, which means it’s taking extra time to review it. Now, as of November 2024, Amedisys and UnitedHealth are still in waiting mode to see if they can proceed with the acquisition.

As we get closer to what might be the final decision this month, I’m taking another look at the company to give you an update. Currently, the stock is trading below the offer price, sitting around $95 per share. I’m going to go over the possible risks and outcomes—both the good and the bad—so investors have a clearer idea of what to expect with the DOJ decision still up in the air.

Upcoming DOJ Meeting

UnitedHealth Group Inc. and Amedisys Inc. are gearing up for a big meeting with the U.S. Department of Justice (DOJ) next week to push for their proposed merger. This so-called “last-rites” meeting gives the companies one final chance to argue their side before the DOJ makes the call on whether to block the deal.

For over a year now, the DOJ has been quietly poking around this merger. Their main worry is that this deal could meddle with home healthcare prices, maybe even hike them up, which, of course, wouldn’t be fantastic news for customers. To calm these worries, UnitedHealth and Amedisys have offered to sell some of their clinics to a company called VCG Luna LLC, which is linked to a Texas-based group called VitalCaring.

By moving these clinics over, UnitedHealth and Amedisys hope to keep local markets competitive, giving VCG Luna a chance to provide patients with more choices and help keep prices reasonable, along with decent service quality. This sell-off is a central piece of the companies’ strategy to ease the regulators’ concerns, reassure the DOJ, and prevent the merger from shaping up into anything resembling a monopoly.

Broader DOJ Investigation

The divestiture is just one slice of the DOJ’s deeper dive into this merger. Officials are also taking a broader view, particularly considering UnitedHealth’s existing muscle in the healthcare world through its Optum subsidiary (where AMED is expected to merge with). Optum covers just about the whole healthcare spectrum—doctor groups, pharmacies, even data analytics—giving UnitedHealth a major role in both delivering healthcare and insuring it. With such a wide reach, regulators and a few lawmakers are left wondering if this merger could further monopolize UnitedHealth’s market power, especially with its sizable footprint in Medicare Advantage.

UnitedHealth’s Acquisition Track Record

UnitedHealth’s track record with similar deals provides some insight into the DOJ’s concerns here. In 2022, UnitedHealth ran into quite a bit of resistance from the DOJ over its $13 billion buyout of Change Healthcare, a significant name in healthcare tech. The DOJ worried that the deal might give UnitedHealth access to competitors’ sensitive data, potentially squeezing competition and slowing down innovation. In September 2022, a judge ruled in UnitedHealth’s favor, letting the merger go ahead, but the DOJ wasn’t quite ready to throw in the towel and filed an appeal. By March 2023, however, the DOJ decided to drop the appeal, effectively letting the merger stand as it was.

Recent Acquisitions and Antitrust Scrutiny

Alongside its bigger deals, UnitedHealth’s offshoot, Optum, has been on a bit of a shopping spree, trying to scoop up large doctor groups here, there, and everywhere—naturally drawing more antitrust attention. The concern is pretty familiar: when doctor networks get bundled together, local competition can get squeezed out. Optum initially tried to buy Steward Health Care’s physician network, sparking worry among lawmakers and regulators that such a merger could choke off competition, potentially hike up prices, or even dip the quality of care. But after Optum backed out, the network was snapped up by Rural Healthcare Group, a private equity-backed company, which has since rebranded it as Revere Medical.

Oregon Health Authority Review

Another obstacle for the acquisition is a detailed review by the Oregon Health Authority (OHA), which should finish up by late November 2024. This review is part of the OHA’s Health Care Market Oversight (HCMO) program. Basically, HCMO is Oregon’s watchdog for big healthcare deals, making sure they line up with the state’s goals to keep healthcare accessible, affordable, and fair for everyone.

When healthcare giants – hospitals, insurers, and so on – are planning a merger, an acquisition or large-scale alliance, the HCMO will get in on the first floor and scrutinize the transaction and assess the impact. HCMO insists that these transactions are made public, giving the community a chance to see what’s happening and even weigh in with their thoughts or concerns. In general, HCMO can either sanction or reject or make restrictions (such as mandating services or preventing price increases) to protect the public and can fine companies for violating the rules.

Mixed Reactions in Oregon

The Oregon Nurses Association (ONA) and other groups have voiced their concerns about the merger and in a public comment to the OHA, the ONA made it clear they’re worried, saying,

UnitedHealth’s track record of driving up profit margins at the expense of patients is not in alignment with Oregon values. Oregonians deserve high-quality, affordable health services; we are concerned that UnitedHealth will fail to provide that care if doing so interferes with their profitability.

In a similar vein, the Corvallis-based Mid Valley Health Care Advocates have taken UnitedHealth’s acquisition application very seriously and have called on the OHA to reject it. They share the DOJ’s concern: by being both an insurer and a provider, UnitedHealth will undermine competition and consumer choice.

Meanwhile, others see this whole acquisition business as potentially excellent for healthcare in the state. Their thinking goes something like this: if you take Amedisys’s knack for home health and mix it with UnitedHealth’s giant network and resources, you might actually get a more streamlined system. So in theory, this could reduce duplicated efforts, smooth out a lot of the bumps in the process, and even save patients a bit of cash.

Potential Impact on Investors

If the Amedisys sale to UnitedHealth doesn’t go through, investors might see the stock drop to about $74 per share — around 20% lower than it was last Friday. That’s the view of Brian Tanquilut, an analyst at Jefferies, who’s advising people to “hold” onto the stock and has set a target price of $101. In his opinion, if the deal falls apart, Amedisys could end up around $74 based on what he thinks it will earn in the future and how it compares to similar companies in the market.

But there’s a silver lining: if the deal is blocked due to regulatory issues, Amedisys would get a break-up fee of $144 million from UnitedHealth. With that included, the stock would actually be worth about $77, so a bit higher than Tanquilut’s worst-case $74 price.

Aside from the regulatory hurdles, Tanquilut still believes the sale will wrap up this year. UnitedHealth and Amedisys both operate in places like Tennessee, Georgia, Louisiana, and Kentucky — key spots for home nursing. If they need to sell off some parts of their business in those areas to satisfy regulators, Tanquilut thinks there are plenty of buyers out there who’d jump at the chance to grow their home nursing services in those states.

Final Takeaway

Currently, I’d say Amedisys, Inc. is a “hold.” The stock is trading below the offer price, which shows that the market has some doubts about whether the regulators will approve the deal. But with an upcoming DOJ meeting and the possibility of selling off parts of the business to address any antitrust concerns, there’s a fair chance the sale could still go through. Since there’s a risk the stock could drop if the deal doesn’t happen, I’d suggest holding on to it for now rather than buying more — at least until we get more clarity on the regulatory side.

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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