This joint proxy statement/prospectus, which forms part of a registration statement on Form
S-4
filed
with the SEC by LHC, constitutes a prospectus of LHC under Section 5 of the Securities Act of 1933, as amended (the Securities Act), with respect to the shares of LHC common stock to be issued to Almost Family stockholders pursuant
to the merger. This joint proxy statement/prospectus also constitutes a joint proxy statement for both LHC and Almost Family under Section 14(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act). It also
constitutes a notice of meeting with respect to the special meeting of LHC stockholders and a notice of meeting with respect to the special meeting of Almost Family stockholders.
You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. No one has been
authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated February 13, 2018. You should not
assume that the information contained in this joint proxy
statement/prospectus is accurate as of any date other than the date of the joint proxy statement/prospectus. You should not assume that the information incorporated by reference into this joint
proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither our mailing of this joint proxy statement/prospectus to LHC stockholders or Almost Family stockholders nor the issuance by LHC of shares
of common stock pursuant to the merger will create any implication to the contrary.
All references in this joint proxy statement/prospectus to LHC refer to LHC Group, Inc., a Delaware corporation; all references in
this joint proxy statement/prospectus to Almost Family refer to Almost Family, Inc., a Delaware corporation; all references to Merger Sub refer to Hammer Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of
LHC formed for the sole purpose of effecting the merger; and all references to the combined company refer to LHC Group, Inc. following the effective time of the merger. Unless otherwise indicated or as the context requires, all
references in this joint proxy statement/prospectus to we, our and us refer to LHC and Almost Family collectively; all references to the LHC and Almost Family stockholders refer to the LHC stockholders
and the Almost Family stockholders collectively; and, unless otherwise indicated or as the context requires, all references to the merger agreement refer to the Agreement and Plan of Merger, dated as of November 15, 2017, by and
among LHC, Almost Family and Merger Sub, a copy of which is included as Annex A to this joint proxy statement/prospectus.
The following table sets forth selected consolidated financial information and other data for LHC as of and for each of the nine-months
periods ended September 30, 2017 and September 30, 2016 and as of and for each of the years in the five-year period ended December 31, 2016. The selected consolidated statement of income data and statement of cash flows data for the
years ended December 31, 2016, 2015 and 2014 and the selected consolidated balance sheet data as of December 31, 2016 and 2015 have been derived from, and are qualified by reference to, the audited consolidated financial statements
included in LHCs Annual Report on Form
10-K
for the year ended December 31, 2016, which is incorporated by reference in this joint proxy statement/prospectus. The selected consolidated statement of
income data and statement of cash flows data for the years ended December 31, 2013 and 2012 and the selected consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from audited consolidated financial
statements of LHC that are not included or incorporated by reference in this joint proxy statement/prospectus.
The selected consolidated
financial information as of September 30, 2017 and for the nine months ended September 30, 2017 and September 30, 2016 is derived from the unaudited condensed consolidated financial statements included in LHCs Quarterly Report
on Form
10-Q
for the quarter ended September 30, 2017, which is incorporated by reference in this joint proxy statement/prospectus. The selected consolidated financial information as of September 30,
2016 is derived from the unaudited condensed consolidated financial statements included in LHCs Quarterly Report on Form
10-Q
for the quarter ended September 30, 2016, which is not incorporated by
reference in this joint proxy statement/prospectus. The unaudited consolidated financial information includes all adjustments, consisting solely of normal recurring adjustments, which LHC considers necessary for a fair statement of its financial
position and results of operations for those periods. The results for the nine months ended September 30, 2017 are not necessarily indicative of the results that might be expected for the entire year ending December 31, 2017 or any other
period.
The consolidated financial information set forth below should be read in conjunction with
LHCs consolidated financial statements, related notes and other financial and operating information incorporated by reference in this joint proxy statement/prospectus.
The following table sets forth selected consolidated financial information and other data for Almost Family as of and for each of the
nine months ended September 29, 2017 and September 30, 2016 and as of and for each of the years in the five-year period ended December 30, 2016. The selected consolidated income statement data for the years ended December 30,
2016, January 1, 2016, and December 31, 2014 and the selected consolidated balance sheet data as of December 30, 2016 and January 1, 2016 have been derived from, and are qualified by reference to, the audited consolidated
financial statements included in Almost Familys Annual Report on Form
10-K
for the year ended December 30, 2016, which is incorporated by reference in this joint proxy statement/prospectus. The
selected consolidated income statement data for the years ended December 31, 2013 and 2012 and the selected consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from audited consolidated financial
statements of Almost Family that are not included or incorporated by reference in this joint proxy statement/prospectus.
The selected
consolidated financial information as of September 29, 2017 and for the nine months ended September 29, 2017 and September 30, 2016 is derived from the unaudited condensed consolidated financial statements included in Almost
Familys Quarterly Report on Form
10-Q
for the quarter ended September 29, 2017, which is incorporated by reference in this joint proxy statement/prospectus. The selected consolidated financial
information as of September 30, 2016 is derived from the unaudited condensed consolidated financial statements included in Almost Familys Quarterly Report on Form
10-Q
for the quarter ended
September 30, 2016, which is not incorporated by reference in this joint proxy statement/prospectus. The results for the nine months ended September 29, 2017 are not necessarily indicative of the results that might be expected for the
entire year ending December 29, 2017 or any other period.
The consolidated financial information set forth below should be read in conjunction with Almost
Familys consolidated financial statements, related notes and other financial and operating information incorporated by reference in this joint proxy statement/prospectus.
Presented below are LHCs historical per share data for the nine months ended September 30, 2017 and the year ended
December 31, 2016, Almost Familys historical per share data for the nine months ended September 29, 2017 and the year ended December 30, 2016, and unaudited pro forma combined per share data for the nine months ended
September 30, 2017 and the year ended December 31, 2016. This information should be read together with the consolidated financial statements and related notes of LHC and Almost Family that are incorporated by reference in this joint proxy
statement/prospectus and with the unaudited pro forma combined financial data included under Unaudited Pro Forma Combined Financial Information beginning on page 29. The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results
or financial position of the combined company. LHC has a fiscal
year-end
of December 31 and Almost Family has a fiscal
year-end
that varies
year-to-year.
In 2016, Almost Familys fiscal
year-end
was December 30. Because of these differences, the following unaudited pro
forma combined per share data for the nine months ended September 30, 2016 and the year ended December 31, 2016 combines the historical per share data of LHC for the nine months ended September 30, 2016 and its fiscal year ended
December 31, 2016 and the historical per share data of Almost Family for the nine months ended September 29, 2016 and its fiscal year ended December 30, 2016.
The historical book value per share is computed by dividing total stockholders equity by the number of shares of common stock
outstanding at the end of the period. The pro forma earnings per share of the combined company is computed by dividing the pro forma net income by the pro forma weighted average number of shares outstanding. The pro forma book value per share of the
combined company is computed by dividing total pro forma stockholders equity by the pro forma number of shares of common stock outstanding at the end of the period. The Almost Family unaudited pro forma equivalent per share financial
information is computed by multiplying the LHC unaudited pro forma combined per share amounts by the exchange ratio (0.9150 shares of LHC common stock for each share of Almost Family common stock).
The book value per share of common stock disclosed above for LHC pro forma combined amounts and Almost Family
pro forma equivalents as of the year ended December 31, 2016 includes the 3.6 million shares issued by Almost Family during the nine months ended September 30, 2017.
The following unaudited pro forma combined financial information is presented to illustrate the estimated effects of the merger based on the
historical financial statements and accounting records of LHC and Almost Family after giving effect to the merger and the merger-related pro forma adjustments as described in the notes below.
The unaudited pro forma combined balance sheet combines the historical consolidated balance sheets of LHC and Almost Family, giving effect to
the merger as if it had been consummated on September 30, 2017. The unaudited pro forma combined statements of income for the nine months ended September 30, 2017 and for the year ended December 31, 2016 combine the historical
consolidated statements of income of LHC and Almost Family, giving effect to the merger as if it had been consummated on January 1, 2016, the beginning of the earliest period presented. The historical consolidated financial statements of Almost
Family have been adjusted to reflect certain reclassifications in order to conform with LHCs financial statement presentation.
The
unaudited pro forma combined financial statements were prepared using the acquisition method of accounting for business combinations pursuant to the provisions of Accounting Standards Codification (ASC) Topic 805, Business Combinations
(ASC 805), with LHC considered the acquirer of Almost Family for accounting purposes. Accordingly, consideration given by LHC to complete the merger will be allocated to the assets and liabilities of Almost Family based upon their
estimated fair values as of the date of completion of the merger. As of the date of this joint proxy statement/prospectus, LHC has not completed the detailed valuation studies necessary to arrive at the required estimates of the fair value of the
Almost Family assets to be acquired and the liabilities to be assumed and the related allocations of merger consideration, nor has it identified all adjustments necessary to conform Almost Familys accounting policies to LHCs accounting
policies. A final determination of the fair value of Almost Familys assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Almost Family that exist as of the date of completion of the merger
and therefore cannot be made prior to the completion of the transaction. Additionally, the value of the per share consideration to be given by LHC to complete the merger will be determined based on the trading price of LHCs common stock at the
time of the completion of the merger. Accordingly, the pro forma merger consideration allocation and adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional analyses are
performed. The preliminary pro forma merger consideration allocation and adjustments have been made solely for the purpose of providing the unaudited pro forma combined financial statements presented below. LHC estimated the fair value of Almost
Familys assets and liabilities based on discussions with Almost Familys management, preliminary valuation studies, due diligence and information presented in public filings. Until the merger is completed, both companies are limited in
their ability to share information with each other. Upon completion of the merger, final valuations will be performed. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the balance sheet and/or
statements of income until the allocation of merger consideration is finalized. There can be no assurance that such finalization will not result in material changes.
These unaudited pro forma combined financial statements have been developed from and should be read in conjunction with (i) the unaudited
interim consolidated financial statements of each of LHC and Almost Family for the quarterly period ended September 30, 2017 and September 29, 2017, respectively, contained in their respective Quarterly Reports on Form
10-Q
for the fiscal quarter ended September 30, 2017 and September 29, 2017, respectively, and (ii) the audited consolidated financial statements of each of LHC and Almost Family contained in their
respective Annual Reports on Form
10-K
for the fiscal year ended December 31, 2016 and December 30, 2016, respectively, all of which are incorporated by reference into this joint proxy
statement/prospectus. The unaudited pro forma combined financial statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of LHC
would have been had the merger occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.
Pro forma adjustments are included only to the extent they are (i) directly attributable to
the merger, (ii) factually supportable and (iii) with respect to the unaudited pro forma combined statement of income, expected to have a continuing impact on the combined results. LHC expects to incur significant costs associated with
integrating the operations of LHC and Almost Family. The unaudited pro forma combined financial statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating
efficiencies or revenue synergies expected to result from the merger.
The accompanying notes are an integral part of the unaudited pro forma combined financial statements.
The accompanying notes are an integral part of the unaudited pro forma combined financial statements.
The accompanying notes are an integral part of the unaudited pro forma combined financial statements.
Note 1. Basis of Presentation
Under the terms of the merger agreement, at the effective time of the merger, (a) Almost Family will become a wholly owned subsidiary of
LHC; (b) each outstanding share of Almost Family common stock will be converted into the right to receive 0.9150 shares of LHC common stock plus cash in lieu of any fractional shares of LHC common stock; and (c) Almost Family stock options
and equity awards will convert into stock options and equity awards with respect to LHC common stock based on the exchange ratio, subject to certain exceptions. For further information regarding the treatment of Almost Family stock options and
equity awards, see LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Agreement Treatment of Almost Family Equity Incentive Awards in this
joint proxy statement/prospectus.
The unaudited pro forma combined financial statements were prepared in accordance with ASC 805, using
the acquisition method of accounting with LHC considered to be the acquirer of Almost Family for accounting purposes.
The unaudited pro
forma combined financial statements present the pro forma combined financial position and results of operations of the combined company based upon the historical financial statements of LHC and Almost Family, after giving effect to the merger and
the adjustments described in these notes. The unaudited pro forma combined financial statements are presented for illustrative purposes only and are not intended to reflect the financial position and results of operations which would have actually
resulted had the merger been completed on the dates indicated. Further, the unaudited pro forma combined financial statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings
due to operating efficiencies or revenue synergies expected to result from the merger.
The unaudited pro forma combined balance sheet
gives effect to the merger as if it had been consummated on September 30, 2017 and includes estimated pro forma adjustments (to the extent they can be currently estimated) for the preliminary valuations of assets acquired and liabilities
assumed. These adjustments are subject to further revision as additional information becomes available and additional analyses are performed. The unaudited pro forma combined statements of income give effect to the merger as if it had been
consummated on January 1, 2016, the beginning of the earliest period presented.
The unaudited pro forma combined balance sheet has
been adjusted to reflect the preliminary allocation of the merger consideration to identifiable net assets acquired and the excess merger consideration to goodwill. The merger consideration allocation in these unaudited pro forma combined financial
statements is based upon aggregate merger consideration of approximately $845.1 million. This amount was calculated as described below in accordance with the merger agreement, based on the outstanding shares of Almost Family common stock, the
exchange ratio of 0.9150 shares of LHC common stock for each Almost Family share and a price per LHC common share of $65.43, which represents the closing price of LHC shares of common stock on December 1, 2017. The actual number of shares of
LHC common stock issued to Almost Family stockholders pursuant to the merger will be based upon the actual number of Almost Family shares outstanding at the effective time of the merger, and the valuation of those shares will be based on the trading
price of LHCs common stock at the effective time of the merger. For further information regarding the treatment of Almost Family equity awards, see LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of
the Merger Agreement The Merger Agreement Treatment of Almost Family Stock-Based Awards in this joint proxy statement/prospectus.
34
The preliminary merger consideration is calculated as follows:
|
|
|
|
|
Outstanding shares of Almost Family common stock as of September 29, 2017
|
|
|
13,964
|
|
Exchange ratio
|
|
|
0.9150
|
|
|
|
|
|
|
Shares of Surviving Corporation to be issued
|
|
|
12,777
|
|
|
|
|
|
|
Price per share as of December 1, 2017
|
|
$
|
65.43
|
|
Fair value of Surviving Corporation common stock to be issued
|
|
$
|
836,003
|
|
Fair value of vested Almost Family equity awards exchanged for Surviving Corporation equity
awards
|
|
|
9,070
|
|
|
|
|
|
|
Preliminary merger consideration
|
|
$
|
845,073
|
|
|
|
|
|
|
The total consideration amount is calculated based on (i) the closing price of LHC shares of common stock
on December 1, 2017, equal to $65.43, (ii) approximately 13,964,000 shares of Almost Family common stock outstanding as of September 29, 2017, and (iii) the exchange ratio described above. Each one dollar increase (decrease) in
the per share price of LHC common stock will result in an approximate $12.7 million increase (decrease) in the total consideration for the transaction, substantially all of which LHC expects would be recorded as an increase (decrease) in the
amount of goodwill recorded in the transaction. The outstanding number of shares of Almost Family common stock will change prior to the closing of the merger due to transactions in the ordinary course of business, including the vesting of
outstanding shares and any grants of new Almost Family equity awards. These changes are not expected to have a material impact on the unaudited pro forma financial statements.
The table below represents a preliminary allocation of the total consideration to Almost Familys tangible and intangible assets and
liabilities based on LHC managements preliminary estimate of their respective fair values (amounts in thousands):
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,149
|
|
Accounts receivable, net
|
|
|
135,083
|
|
Prepaid income taxes
|
|
|
3,507
|
|
Prepaid expenses
|
|
|
9,783
|
|
Other current assets
|
|
|
3,421
|
|
Property and equipment
|
|
|
16,489
|
|
Goodwill
|
|
|
746,701
|
|
Intangible assets
|
|
|
194,696
|
|
Other assets
|
|
|
4,726
|
|
Assets held for sale
|
|
|
3,800
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and other accrued liabilities
|
|
|
(20,603
|
)
|
Accrued other liabilities
|
|
|
(5,551
|
)
|
Salaries, wages, and benefits payable
|
|
|
(28,098
|
)
|
Self-insurance payable
|
|
|
(15,659
|
)
|
Long-term debt obligations
|
|
|
(136,061
|
)
|
Deferred income taxes
|
|
|
(46,058
|
)
|
Income tax payable
|
|
|
(4,344
|
)
|
Redeemable noncontrolling interest
|
|
|
(2,256
|
)
|
Non-redeemable
noncontrolling interest
|
|
|
(33,652
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
845,073
|
|
|
|
|
|
|
35
Upon completion of the fair value assessment after the merger, it is anticipated that the
ultimate allocation of merger consideration will differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities, which may be material, will be recorded as adjustments to
those assets and liabilities and residual amounts will be allocated to goodwill. Assets and liabilities for which preliminary adjustments have been made are described in Note 3 below. Other assets and liabilities for which adjustments have not yet
been reflected include, but are not limited to, the valuation of definite-lived intangible assets. Accordingly, LHC will continue to refine the identification and initial measurement of assets to be acquired and liabilities to be assumed as further
information becomes available.
Note 2. Reclassification Adjustments
The unaudited pro forma financial information has been compiled in a manner consistent with the accounting policies adopted by LHC. Certain
balances from the consolidated financial statements of Almost Family were reclassified to conform its presentation to that of LHC:
The
following reclassifications were made to the unaudited pro forma combined balance sheet as of September 30, 2017 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
|
|
Account description
|
|
Reclass Patient
Accounts
Receivable, net
|
|
|
Reclass
Prepaid
Expenses
|
|
|
Reclass
Accrued
other
liabilities
|
|
|
Reclass
Other
Liabilities
|
|
|
Total
|
|
Patient accounts receivable, net
|
|
$
|
3,210
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,210
|
|
Prepaid income taxes
|
|
|
|
|
|
|
3,507
|
|
|
|
|
|
|
|
|
|
|
|
3,507
|
|
Prepaid expenses
|
|
|
|
|
|
|
(6,928
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,928
|
)
|
Other current assets
|
|
|
|
|
|
|
3,421
|
|
|
|
|
|
|
|
|
|
|
|
3,421
|
|
Other assets
|
|
|
(3,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,210
|
)
|
Accounts payable and other accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
1,385
|
|
|
|
|
|
|
|
1,385
|
|
Accrued other liabilities
|
|
|
|
|
|
|
|
|
|
|
(45,142
|
)
|
|
|
|
|
|
|
(45,142
|
)
|
Salaries, wages, and befits payable
|
|
|
|
|
|
|
|
|
|
|
28,098
|
|
|
|
|
|
|
|
28,098
|
|
Self-insurance reserve
|
|
|
|
|
|
|
|
|
|
|
15,659
|
|
|
|
|
|
|
|
15,659
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,344
|
)
|
|
|
(4,344
|
)
|
Income tax payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,344
|
|
|
|
4,344
|
|
A reclassification was made to the unaudited pro forma combined income statements for the nine months ended
September 30, 2017 of $11.2 million of general and administrative expenses to provision for bad debts.
A reclassification was
made to the unaudited pro forma combined income statements for the twelve months ended December 31, 2016 of $11.7 million of general and administrative expenses to provision for bad debts.
Note 3. Unaudited Pro Forma Combined Balance Sheet Adjustments
The unaudited pro forma combined balance sheet reflects the following adjustments:
|
(a)
|
Prepaid income taxes.
The income tax expense impact of the pro forma adjustments was determined by applying an estimated statutory tax rate of 41%.
|
36
|
(b)
|
Goodwill.
Goodwill is calculated as the difference between the fair value of the aggregate merger consideration and the values assigned to the identifiable tangible and intangible assets acquired and
liabilities assumed. The amount of goodwill presented in the table below reflects the estimated goodwill as a result of the merger as of September 30, 2017. The actual amount of goodwill will depend upon the final determination of fair values
of the assets acquired and liabilities assumed and may differ materially from this preliminary determination. The goodwill created in the merger is not expected to be deductible for tax purposes and is subject to material revisions as the purchase
price allocation is completed. The excess of the merger consideration over the estimated fair value of the identifiable net assets acquired is calculated as follows (amounts in thousands):
|
|
|
|
|
|
Aggregate merger consideration
|
|
$
|
845,073
|
|
Less: estimated fair value of net assets acquired
|
|
|
(98,372
|
)
|
|
|
|
|
|
Estimated goodwill arising from the merger
|
|
|
746,701
|
|
Less: book value of Almost Family existing goodwill
|
|
|
(390,552
|
)
|
|
|
|
|
|
Pro forma adjustment
|
|
$
|
356,149
|
|
|
|
|
|
|
|
(c)
|
Intangibles.
Intangible assets expected to be acquired consist of the following (amounts in thousands):
|
|
|
|
|
|
Description
|
|
Estimated value
|
|
Trade name
|
|
$
|
116,679
|
|
Certificates of Need
|
|
|
26,771
|
|
Medicare licenses
|
|
|
21,928
|
|
Medicaid licenses
|
|
|
12,416
|
|
Definite intangible assets
|
|
|
16,902
|
|
|
|
|
|
|
Total intangible assets
|
|
|
194,696
|
|
Less: book value of Almost Family intangible assets
|
|
|
(145,363
|
)
|
|
|
|
|
|
Pro forma adjustment
|
|
$
|
49,333
|
|
|
|
|
|
|
The fair value estimates for intangible assets are preliminary and determined based on the assumptions that
market participants would use in pricing an asset, based on the most advantageous market for the asset. Acquired intangible assets include both definite-lived assets, consisting of
non-compete
agreements,
customer relationships, and software; however, as of the date of this joint proxy statement/prospectus, LHC does not have sufficient information to make a reasonable preliminary estimate of the estimated lives of such assets and no amortization
expense has been assigned at this time, and indefinite-lived assets consisting of trade names, Certificates of Need, Medicare licenses, and Medicaid licenses, which are not amortized. The final fair value determination for intangible assets may
differ materially from this preliminary determination. Any change in the amount of the final fair value of amortizable, definite-lived intangible assets, or any change in the current designation of
non-amortizable
indefinite-lived intangible assets, could materially affect the amount of amortization expense recorded by the combined company subsequent to the date of completion of the merger.
|
(d)
|
Deferred taxes.
The adjustment represents an estimate of net deferred income tax liability resulting from pro forma adjustments for the assets to be acquired based on an estimated U.S. statutory rate of 39.1%.
This estimate of deferred taxes was determined based on the excess fair value of intangible assets acquired over Almost Familys book basis. The incremental deferred tax liability was calculated based on the statutory rates where fair value
adjustments were estimated. This estimate of deferred income taxes is preliminary and is subject to change based upon managements final determination of the fair value of intangible assets acquired.
|
|
(e)
|
Equity.
The adjustment represents (i) the issuance of LHC stock to Almost Familys shareholders
in connection with the merger, (ii) the elimination of Almost Familys historical equity, (iii) the estimated impact of transaction costs related to the merger, and (iv) the acceleration of certain Almost Familys
|
37
|
restricted stock awards upon completion of the merger. The following table details the pro forma adjustments made to various stockholders equity accounts (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Treasury
Stock
|
|
|
Additional
Paid-in-Capital
|
|
|
Retained
Earnings
|
|
Issuance of LHC stock
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
835,876
|
|
|
$
|
|
|
Elimination of Almost Familys historical equity
|
|
|
(1,414
|
)
|
|
|
5,825
|
|
|
|
(288,329
|
)
|
|
|
(174,962
|
)
|
Transaction related costs
|
|
|
|
|
|
|
|
|
|
|
5,939
|
|
|
|
(3,504
|
)
|
Acceleration of certain Almost Familys restricted stock awards
|
|
|
2
|
|
|
|
|
|
|
|
9,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,285
|
)
|
|
$
|
5,825
|
|
|
$
|
562,554
|
|
|
$
|
(178,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4. Unaudited Pro Forma Combined Statements of Income Adjustments
The unaudited pro forma combined statement of income reflects the following adjustments:
|
(a)
|
Share-based compensation
.
At completion, Almost Family awards will be converted into LHC equity awards after giving effect to the exchange ratio. Share-based compensation expense, following the completion
of the merger, will reflect the fair value of the awards as of the completion date for the portion that was allocated to post-combination services. Adjustments of $1.8 million and $4.1 million of stock-based compensation expense was
recorded for the nine months ended September 30, 2017 and twelve months ended December 31, 2016, respectively.
|
|
(b)
|
Income tax expense
.
The income tax expense impact of the pro forma adjustments was determined by applying an estimated statutory tax rate of 41%.
|
|
(c)
|
Earnings per share
.
The pro forma combined basic and diluted earnings per share for the nine months ended September 30, 2017 and the twelve months ended December 31, 2016, are calculated as
follows (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
September 30,
2017
|
|
|
Twelve
months ended
December 31,
2016
|
|
LHCs historic average basic shares
|
|
|
17,705
|
|
|
|
17,559
|
|
Shares issued for Almost Family
|
|
|
12,916
|
|
|
|
12,916
|
|
|
|
|
|
|
|
|
|
|
Pro forma historic average basic shares
|
|
|
30,621
|
|
|
|
30,475
|
|
Dilutive effect of equity awards:
|
|
|
|
|
|
|
|
|
LHCs equity awards
|
|
|
227
|
|
|
|
124
|
|
Almost Familys equity awards converted to the Survivor Corporation equity awards
|
|
|
271
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted weighted average shares outstanding
|
|
|
31,119
|
|
|
|
30,834
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$
|
1.38
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$
|
1.36
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
38
COMPARATIVE STOCK PRICE DATA AND DIVIDENDS
Stock Prices
Shares of LHC common stock are listed for trading on the NASDAQ under the symbol LHCG. Shares of Almost Family common stock are
listed for trading on the NASDAQ under the symbol AFAM. The following table sets forth the closing sales prices per share of LHC common stock and Almost Family common stock, on an actual and equivalent per share basis, on the NASDAQ on
the following dates:
|
|
|
November 15, 2017, the last full trading day prior to the public announcement of the merger, and
|
|
|
|
February 1, 2018, the last trading day for which this information could be calculated prior to the filing of this joint proxy statement/prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LHC
Common
Stock
|
|
|
Almost Family
Common
Stock
|
|
|
Almost Family
Equivalent
Per Share (1)
|
|
November 15, 2017
|
|
$
|
66.53
|
|
|
$
|
52.65
|
|
|
$
|
60.87
|
|
February 1, 2018
|
|
$
|
62.89
|
|
|
$
|
57.00
|
|
|
$
|
57.54
|
|
(1)
|
The equivalent per share data for Almost Family common stock has been determined by multiplying the market price of one share of LHC common stock on each of the dates by the exchange ratio of 0.9150.
|
The following table sets forth, for the periods indicated, the high and low sales prices per share of LHC common stock and Almost Family
common stock on the NASDAQ. For current price information, you should consult publicly available sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LHC
|
|
|
Almost Family
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Calendar Year 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
$
|
45.29
|
|
|
$
|
33.55
|
|
|
$
|
40.78
|
|
|
$
|
34.62
|
|
Three months ended June 30, 2016
|
|
|
43.67
|
|
|
|
35.05
|
|
|
|
44.01
|
|
|
|
36.75
|
|
Three months ended September 30, 2016
|
|
|
46.51
|
|
|
|
34.90
|
|
|
|
44.39
|
|
|
|
35.41
|
|
Three months ended December 31, 2016
|
|
|
45.70
|
|
|
|
32.48
|
|
|
|
44.85
|
|
|
|
36.21
|
|
Calendar Year 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
|
$
|
54.10
|
|
|
$
|
44.64
|
|
|
$
|
50.00
|
|
|
$
|
45.30
|
|
Three months ended June 30, 2017
|
|
|
68.35
|
|
|
|
51.76
|
|
|
|
62.25
|
|
|
|
46.20
|
|
Three months ended September 30, 2017
|
|
|
70.92
|
|
|
|
57.72
|
|
|
|
62.45
|
|
|
|
45.90
|
|
Three months ended December 31, 2017
|
|
|
72.07
|
|
|
|
59.70
|
|
|
|
64.35
|
|
|
|
40.40
|
|
Calendar Year 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018 (through February 1, 2018)
|
|
$
|
65.86
|
|
|
$
|
61.26
|
|
|
$
|
59.75
|
|
|
$
|
56.00
|
|
Dividends
At the close of business on the LHC record date, 18,285,192 shares of LHC common stock were issued and outstanding. LHC does not
currently pay dividends on shares of its common stock, and did not pay dividends in 2017, 2016 or 2015. At the close of business on the Almost Family record date, 13,991,588 shares of Almost Family common stock were outstanding. Almost
Family does not currently pay dividends on shares of its common stock, and did not pay dividends in 2017, 2016 or 2015. The combined company does not anticipate paying cash dividends on the common stock of the combined company in the foreseeable
future.
39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents incorporated herein by reference into this joint proxy statement/prospectus contain
forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) regarding, among other things, future events or the future financial performance of LHC and Almost Family or the timing or anticipated
benefits of the merger. Words such as anticipate, expect, project, intend, believe, will, estimates, may, could, should and words
and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. The closing of the merger is subject to the approval of the stockholders of LHC and Almost Family,
regulatory approvals and other customary closing conditions. There is no assurance that such conditions will be met or that the merger will be consummated within the expected time frame, or at all. Forward-looking statements relating to the merger
include, but are not limited to: statements about the benefits of the proposed transaction, including anticipated synergies and cost savings and future financial and operating results; LHCs and Almost Familys plans, objectives,
expectations, projections and intentions; the expected timing of completion of the merger; and other statements relating to the transaction that are not historical facts. Forward-looking statements are based on information currently available to LHC
and Almost Family and involve estimates, expectations and projections. Investors are cautioned that all such forward-looking statements are subject to risks and uncertainties, and important factors could cause actual events or results to differ
materially from those indicated by such forward-looking statements. With respect to the merger, these risks, uncertainties and factors include, but are not limited to: the risk that LHC or Almost Family may be unable to obtain governmental and
regulatory approvals required for the transaction, or that required governmental and regulatory approvals may delay the transaction or result in the imposition of conditions that could reduce the anticipated benefits from the merger, require the
parties to divest assets or cease operations in certain jurisdictions or cause the parties to abandon the merger; the risk that required stockholder approvals may not be obtained; the risks that the other condition(s) to closing of the transaction
may not be satisfied; the length of time necessary to consummate the merger, which may be longer than anticipated for various reasons; the risk that the businesses will not be integrated successfully; the risk that the cost savings, synergies and
growth from the merger may not be fully realized or may take longer to realize than expected; the risk that LHC or Almost Family may be unable to obtain the necessary consents from their lenders in connection with the merger or refinance their debt
on favorable terms, if at all, in connection with the merger; the diversion of management time on transaction-related issues; the risk that costs associated with the integration of the businesses are higher than anticipated; and litigation risks
related to the transaction, including the three lawsuits filed to date regarding the transaction. With respect to the businesses of LHC and/or Almost Family, including if the merger is consummated, these risks, uncertainties and factors include, but
are not limited to: changes in, or failure to comply with, existing government regulations that impact LHCs and/or Almost Familys businesses; the impact of tax reform; legislative proposals for healthcare reform; the impact of changes in
future interpretations of fraud, anti-kickback, or other laws; changes in Medicare and Medicaid reimbursement levels; changes in laws and regulations with respect to Accountable Care Organizations; changes in the marketplace and regulatory
environment for Health Risk Assessments; the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect and/or risks related to the ability to obtain financing or refinance existing debt;
decrease in demand for LHCs or Almost Familys services; the potential impact of the announcement or consummation of the merger on relationships with customers, joint venture and other partners, payors, competitors, management and other
employees, including the loss of significant contracts or reduction in revenues associated with major payor sources; ability of customers to pay for services; risks related to any current or future litigation proceedings; potential audits and
investigations by government and regulatory agencies, including the impact of any negative publicity or litigation; the ability to attract new customers and retain existing customers in the manner anticipated; the ability to hire and retain key
personnel; increased competition from other entities offering similar services as offered by LHC and Almost Family; reliance on and integration of information technology systems; ability to protect intellectual property rights; impact of security
breaches, cyber-attacks or fraudulent activity on LHC or Almost Familys reputation, financial results or condition; the risks associated with assumptions the parties make in connection with the parties critical accounting estimates and
legal proceedings; the risks associated with the combined companys expansion
40
strategy, the successful integration of recent acquisitions and joint ventures, and if necessary, the ability to relocate or restructure current facilities; and the potential impact of an
economic downturn or effects of tax assessments or tax positions taken, risks related to goodwill and other intangible asset impairment, tax adjustments, anticipated tax rates, benefit or retirement plan costs, or other regulatory compliance costs.
Additional information concerning other risk factors is also contained in LHCs and Almost Familys most recently filed Annual
Reports on Form
10-K,
subsequent Quarterly Reports on Form
10-Q,
Current Reports on Form
8-K,
and other SEC filings.
Many of these risks, uncertainties and assumptions are beyond LHCs or Almost Familys ability to control or predict. Because of
these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the information currently available to the parties on the date they are
made, and neither LHC nor Almost Family undertakes any obligation to update publicly or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this joint proxy statement/prospectus. Neither LHC nor
Almost Family gives any assurance (1) that either LHC or Almost Family will achieve its expectations, or (2) concerning any result or the timing thereof. All subsequent written and oral forward-looking statements concerning LHC, Almost
Family, the merger, the combined company or other matters and attributable to LHC or Almost Family or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above.
41
RISK FACTORS
In addition to the other information included and incorporated by reference in this joint proxy statement/prospectus, including the matters
addressed in the section entitled Special Note Regarding Forward-Looking Statements, you should carefully consider the following risks before deciding how to vote. In addition, you should read and consider the risks associated with each
of the businesses of LHC and Almost Family because these risks will also affect the combined company. These risks can be found in the Annual Reports on Form
10-K
of each of LHC and Almost Family for the fiscal
year ended December 31, 2016 and December 30, 2016, respectively, as such risks may be updated or supplemented in each companys subsequently filed Quarterly Reports on Form
10-Q
or Current
Reports on Form
8-K,
which are incorporated by reference into this joint proxy statement/prospectus. You should also read and consider the other information in this joint proxy statement/prospectus and the
other documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled Where You Can Find More Information beginning on page 155.
Risk Factors Relating to the Merger
The exchange ratio is fixed and will not be adjusted in the event of any change in either LHCs or Almost Familys stock price.
Upon closing of the merger, Almost Family stockholders will receive 0.9150 shares of LHC common stock for each share of their Almost Family
common stock plus cash in lieu of fractional shares of LHC common stock. This exchange ratio will not be adjusted for changes in the market price of either LHC common stock or Almost Family common stock between the date of signing the merger
agreement and completion of the merger. Changes in the price of LHC common stock prior to the merger will affect the value of LHC common stock that Almost Family stockholders will receive on the date of the merger. The exchange ratio will be
adjusted ratably to fully reflect the effect of any split, combination, reclassification, share dividend, other distribution in shares, reorganization, recapitalization, exchange or other like change with respect to the shares of either LHC common
stock or Almost Family common stock prior to the closing of the merger.
The prices of LHC common stock and Almost Family common stock at
the closing of the merger may vary from their prices on the date the merger agreement was signed, on the date of this joint proxy statement/prospectus and on the date of each stockholder meeting. As a result, the implied value represented by the
exchange ratio will also vary. For example, based on the range of closing prices of LHC common stock during the period from November 15, 2017, the last trading day before public announcement of the merger, through February 1, 2018,
the latest practicable trading date before the date of this joint proxy statement/prospectus, the exchange ratio represented a value ranging from a high of $65.23 to a low of $54.63 for each share of Almost Family common stock.
These variations could result from changes in the business, operations or prospects of LHC or Almost Family prior to or following the merger,
regulatory considerations, general market and economic conditions and other factors both within and beyond the control of LHC or Almost Family. We may complete the merger a considerable period after the dates of the LHC special meeting and the
Almost Family special meeting. Therefore, at the time of the Almost Family special stockholders meeting, Almost Family stockholders will not know with certainty the value of the shares of LHC common stock that they will receive upon completion of
the merger.
The consummation of the merger is contingent upon the satisfaction of a number of conditions, including stockholder and regulatory
approvals, that are outside of LHCs or Almost Familys control and that LHC and Almost Family may be unable to satisfy or obtain or which may delay the consummation of the merger or result in the imposition of conditions that could reduce
the anticipated benefits from the merger or cause the parties to abandon the merger.
Consummation of the merger is contingent upon
the satisfaction of a number of conditions, some of which are beyond LHCs and Almost Familys control, including, among others: (i) the adoption of the merger
42
agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of Almost Familys common stock; (ii) the approval of the issuance of shares of
LHCs common stock to be issued to the Almost Family stockholders in the merger by the affirmative vote of a majority of the shares of LHCs common stock present in person or represented by proxy at LHCs special meeting;
(iii) the expiration or termination of the required waiting periods under the HSR Act; (iv) the absence of any order or law prohibiting the merger or the other transactions contemplated by the merger agreement; (v) the effectiveness
of the registration statement of which this joint proxy statement/prospectus forms a part; (vi) the receipt of certain tax opinions; and (vii) the absence of a material adverse effect with respect to either LHC or Almost Family (as defined
in the merger agreement). LHC and Almost Family may be unable to obtain the regulatory approvals required for the merger or the required regulatory approvals may delay the merger or result in the imposition of conditions, possibly including
imposition of conditions that may require certain operations to be divested, that could reduce the anticipated benefits from the merger or cause the parties to abandon the merger. Any delay in completing the merger could cause the combined company
not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the merger is successfully completed within its expected time frame. See LHC Proposal I: Approval of the Share Issuance and Almost Family
Proposal I: Approval of the Merger Agreement The Merger Agreement Conditions to Completion of the Merger beginning on page 132.
The merger agreement also requires that LHC and Almost Family use reasonable best efforts to obtain all necessary or advisable approvals from
governmental authorities, including those from a number of the federal, state and municipal authorities that regulate the businesses of LHC and Almost Family, including in New York state, which accounts for approximately 7% of Almost Familys
annual revenues. There can be no assurances that these regulatory approvals will be obtained or what conditions may be imposed on the companies in order to obtain such approvals. While these regulatory approvals are not a condition to closing the
merger, the failure to obtain any of these regulatory approvals could impose additional material costs on or materially limit the revenue of the combined company following the merger, including ceasing operations or divesting assets in certain
jurisdictions, including New York State. For a more detailed description of the regulatory review process, see the section entitled LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger
Agreement The Merger Regulatory Clearances Required for the Merger beginning on page 110.
While the merger
is pending, LHC and Almost Family will be subject to business uncertainties that could adversely affect their businesses and operations.
Uncertainty about the effect of the merger on employees, joint venture partners, third party payors, customers and other persons with whom LHC
or Almost Family has a business relationship may have an adverse effect on each of LHCs and Almost Familys business, operations and stock price. In connection with the pendency of the merger, existing customers or partners could decide
to no longer do business with LHC or Almost Family. In addition, certain LHC or Almost Family projects may be delayed or ceased and business decisions could be deferred. Persons with whom each of LHC and almost Family has a business relationship,
such as joint venture partners and third party payors, could also decide to terminate, modify or renegotiate their relationships with the companies or take other actions as a result of the merger that could negatively affect LHCs and Almost
Familys revenue, earnings and cash flows. Employee retention may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles. If key employees depart, the businesses of LHC and
Almost Family prior to the merger, and the business of the combined company following the merger, could be materially harmed. In addition, stockholders and market analysts could also have a negative perception of the merger, which could cause a
material reduction in LHCs and Almost Familys stock prices and could also result in (i) LHC not achieving the requisite vote to approve the issuance of LHCs shares in the merger and/or (ii) Almost Family not achieving the
requisite vote to adopt the merger.
43
Several lawsuits have been filed against LHC, Merger Sub, Almost Family and/or Almost Familys board
of directors challenging the adequacy of public disclosures related to the merger and an adverse ruling may prevent the merger from being completed.
LHC, Merger Sub, Almost Family and/or the members of Almost Familys board of directors were named as defendants in three lawsuits brought
by alleged Almost Family stockholders challenging the adequacy of public disclosures related to the merger and seeking, among other things, injunctive relief to enjoin the defendants from completing the merger pursuant to those disclosures.
Additional lawsuits may be filed against LHC, Merger Sub, Almost Family and/or their respective directors or officers in connection with the merger. See The Merger Litigation Related to the Merger on page 114 for more
information about the lawsuits that have been filed related to the merger.
One of the conditions to the closing of the merger is no
judgment, injunction, order or decree of any governmental authority of competent jurisdiction prohibiting the consummation of the merger shall be in effect, and no law shall have been enacted, entered, promulgated or enforced by any governmental
authority after the date of the merger agreement that, in any case, prohibits, restrains, enjoins or makes illegal the consummation of the merger and the other transactions contemplated by the merger agreement. Consequently, if a settlement or other
resolution is not reached in the lawsuits referenced above and the plaintiffs secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting the parties ability to complete the merger, then such injunctive or other
relief may prevent the merger from becoming effective within the expected time frame or at all.
Failure to complete the merger could negatively
impact the stock prices and the future business and financial results of LHC and Almost Family.
Completion of the merger is not
assured. If the merger is not completed, the ongoing businesses and financial results of LHC and/or Almost Family may be adversely affected and LHC and/or Almost Family will be subject to several risks, including the following:
|
|
|
the price of LHCs common stock and Almost Familys common stock may decline to the extent that its current market prices reflect a market assumption that the merger will be completed;
|
|
|
|
having to pay significant costs relating to the merger without receiving the benefits of the merger, including, in certain circumstances, a termination fee of $30 million or an expense reimbursement of up to
$5 million;
|
|
|
|
negative reactions from customers, stockholders and market analysts;
|
|
|
|
the possible loss of employees necessary to operate the respective businesses;
|
|
|
|
LHC and Almost Family will have been subject to certain restrictions on the conduct of their businesses, which may have prevented them from making certain acquisitions or dispositions or pursuing certain business
opportunities while the merger was pending; and
|
|
|
|
the diversion of the focus of each companys management to the merger instead of on pursuing other opportunities that could have been beneficial to their respective companies.
|
If the merger is not completed, LHC and Almost Family cannot assure their respective stockholders that these risks will not materialize and
will not materially adversely affect the business, financial results and stock prices of LHC or Almost Family.
The merger agreement contains
provisions that could discourage a potential competing acquirer of either LHC or Almost Family.
The merger agreement contains
no shop provisions that, subject to limited exceptions, restrict each of LHCs and Almost Familys ability to solicit, initiate or knowingly encourage or facilitate any inquiry, proposal
44
or offer with respect to any acquisition proposal for a competing transaction, including any acquisition of a significant interest in LHCs or Almost Familys assets or stock. Further,
even if the LHC board of directors or the Almost Family board of directors withdraws or qualifies its recommendation with respect to the merger, LHC or Almost Family, as the case may be, will still be required to submit each of their merger-related
proposals to a vote at their respective special meetings, unless the other party shall terminate the merger agreement. In addition, the other party generally has matching rights, which provide it an opportunity to offer to modify the
terms of the merger in response to any competing acquisition proposals before the board of directors of the company that has received a third-party proposal may withdraw or qualify its recommendation with respect to the merger. See LHC
Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Agreement No Solicitation of Alternative Proposals beginning on page 122, LHC Proposal
I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Agreement Changes in Board Recommendations beginning on page 124 and LHC Proposal I: Approval of the
Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Agreement Termination of the Merger Agreement beginning on page 134.
These provisions could discourage a potential third-party acquiror that might have an interest in acquiring all or a significant portion of
LHC or Almost Family from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger, or might result
in a potential third-party acquiror proposing to pay a lower price to the stockholders than it might otherwise have proposed to pay because of the added expense of the $30 million termination fee that may become payable by either LHC or Almost
Family to the other party in certain circumstances. See LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Agreement Expenses and
Termination Fees; Liability for Breach beginning on page 135.
LHCs and Almost Familys executive officers and directors have
certain interests in the merger that may be different from, or in addition to, the interests of LHC and Almost Family stockholders generally.
LHCs and Almost Familys executive officers and directors have certain interests in the merger that may be different from, or in
addition to, the interests of LHC stockholders and Almost Family stockholders generally. The executive officers of LHC and Almost Family have arrangements with LHC and Almost Family, respectively, that provide for severance benefits if their
employment is terminated under certain circumstances following the completion of the merger. In addition, equity awards granted by Almost Family to its directors, executive officers and other employees will be converted into equity awards with
respect to LHC common stock. Executive officers and directors also have rights to indemnification and directors and officers liability insurance that will survive completion of the merger.
Upon completion of the merger, the board of directors of the combined company will be comprised initially of ten members, (i) six of whom
will be selected by LHC and (ii) four of whom will be selected by Almost Family. Keith G. Myers, chairman and chief executive officer of LHC, will serve as the chairman of the board of directors of the combined company and also as chief
executive officer of the combined company. Additionally, the combined companys management team will include executives from each of LHC and Almost Family. Donald D. Stelly, current president and chief operating officer of LHC, will serve as
the president and chief operating officer of the combined company. Joshua L. Proffitt, current executive vice president and chief financial officer of the LHC, will serve as the chief financial officer of the combined company. C. Steven Guenthner,
current president and principal financial officer of Almost Family, will serve as the chief strategy officer of the combined company and president of Almost Family. William B. Yarmuth, current chairman, director and chief executive officer of Almost
Family, will serve as a special advisor to the combined company. In connection with the merger, C. Steven Guenthner entered into a certain employment agreement and William B. Yarmuth entered into a certain consulting agreement, each to be effective
as of the effective time of the merger and as described more fully below in the sections entitled LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger The
Merger Board of Directors and
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Management Following the Merger beginning on page 108 and LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger The
Merger Interests of Almost Family Directors and Executive Officers in the Merger Employment, Consulting and Severance Arrangements with Executive Officers beginning on page 105.
The LHC and Almost Family boards of directors were aware of these interests at the time each approved the merger and the merger agreement.
These interests, including the continued employment of certain executive officers of LHC and Almost Family by the combined company, the continued positions of certain directors of LHC and Almost Family as directors of the combined company and the
indemnification of former directors and officers by the combined company, may cause LHCs and Almost Familys directors and executive officers to view the merger proposal differently and more favorably than you may view it. See LHC
Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Interests of LHC Directors and Executive Officers in the Merger beginning on page 103 and
LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger Agreement The Merger Interests of Almost Family Directors and Executive Officers in the Merger
beginning on page 104 for more information.
Current holders of LHC and Almost Family common stock will have a reduced ownership and voting interest
after the merger and will exercise less influence over management.
Upon the completion of the merger, each Almost Family
stockholder who receives shares of LHC common stock will become a stockholder of the combined company with a percentage ownership of the combined company that is smaller than such stockholders percentage ownership of Almost Family. Similarly,
after completion of the merger, the shares of combined company common stock retained by each LHC stockholder will represent a smaller percentage ownership of the combined company than such stockholders percentage ownership of LHC. It is
currently expected that the stockholders of Almost Family immediately prior to the effective time of the merger as a group will receive shares in the merger constituting approximately 41.5% of the shares of combined company common stock on a fully
diluted basis immediately after the merger. As a result, stockholders of LHC immediately prior to the effective time of the merger as a group will own approximately 58.5% of the shares of combined company common stock on a fully diluted basis
immediately after the merger. Because of this, LHC and Almost Family stockholders will have less voting power and therefore less influence on the management and policies of the combined company than they now have on the management and policies of
LHC and Almost Family, respectively.
LHC and Almost Family expect to incur substantial transaction-related costs in connection with the merger.
LHC and Almost Family have incurred and expect to incur significant costs, expenses and fees for professional services and other
transaction costs in connection with the merger. In addition, the merger could result in additional costs and expenses that were not expected or anticipated, and such costs and expenses could have a material adverse effect on the financial condition
and results of operation of LHC and Almost Family prior to the merger and of the combined company thereafter.
Neither Almost Family nor LHC
stockholders will be entitled to dissenters or appraisal rights in the merger.
Dissenters or appraisal rights are
statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial
proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. Under the Delaware General Corporation Law (the DGCL), stockholders are not entitled to exercise any appraisal
rights in connection with the merger or the other transactions contemplated by the merger agreement. Under the DGCL, appraisal rights are not available for the shares of any class or series if the shares of the class or series are listed on a
national securities exchange or held of record by more than 2,000 holders on the record date, unless the stockholders receive in exchange for their
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shares anything other than shares of stock of the surviving or resulting corporation or of any other corporation that is publicly listed or held by more than 2,000 holders of record, cash in lieu
of fractional shares or fractional depositary receipts or any combination of the foregoing.
Because the Almost Family common stock is
listed on the NASDAQ, a national securities exchange, and the LHC common stock is also listed on the NASDAQ and is expected to continue to be so listed following the merger, and because the merger otherwise satisfies the requirements under the DGCL,
holders of Almost Family and LHC common stock will not be entitled to dissenters or appraisal rights in the merger.
If the merger does not
qualify as a reorganization within the meaning of Section 368(a) of the Code, the stockholders of Almost Family may be required to pay substantial U.S. federal income taxes.
Although LHC and Almost Family intend that the merger qualify as a reorganization within the meaning of Section 368(a) of the
Code, it is possible that the IRS may assert that the merger fails to qualify as such. If the IRS were to be successful in any such contention or if for any other reason the merger were to fail to qualify as a reorganization, each Almost
Family stockholder would recognize a gain or loss with respect to all such stockholders shares of Almost Family common stock based on the difference between (i) that Almost Family stockholders tax basis in such shares and
(ii) the aggregate cash and the fair market value of the LHC common stock received. For additional information, see LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Approval of the Merger
Agreement The Merger U.S. Federal Income Tax Consequences of the Merger beginning on page 112 for a more complete discussion of the U.S. federal income tax consequences of the merger.
Risk Factors Relating to the Combined Company Following the Merger
The combined company may fail to realize all of the anticipated benefits of the merger or those benefits may take longer to realize than expected. The
combined company may also encounter significant difficulties in integrating the two businesses.
The ability of LHC and Almost
Family to realize the anticipated benefits of the merger will depend, to a large extent, on the combined companys ability to successfully integrate the two businesses. The combination of two independent businesses is a complex, costly and
time-consuming process. As a result, the combined company will be required to devote significant management attention and resources to integrating the business practices and operations of LHC and Almost Family. The integration process may disrupt
the business of the combined company and, if implemented ineffectively, would restrict the full realization of the anticipated benefits. The failure to meet the challenges involved in integrating the two businesses and to realize the anticipated
benefits of the transaction could cause an interruption of, or a loss of momentum in, the activities of the combined company and could adversely impact the business, financial condition and results of operations of the combined company. In addition,
the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, loss of customers and diversion of the attention of the combined companys management and employees. The challenges of combining the
operations of the companies include, among others:
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difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination;
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difficulties in the integration of operations and systems, including information technology systems;
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difficulties in establishing effective uniform controls, standards, systems, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
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difficulties in the acculturation of employees;
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difficulties in managing the expanded operations of a larger and more complex company;
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challenges in keeping existing customers and obtaining new customers;
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challenges in attracting new joint venture partners and acquisition targets;
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challenges in attracting and retaining key personnel, including personnel that are considered key to the future success of the combined company; and
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challenges in keeping key business relationships in place.
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Many of these factors will be
outside of the control of the combined company, and any one of them could result in increased costs and liabilities, decreases in the amount of expected revenue and earnings and diversion of managements time and energy, which could have a
material adverse effect on the business, financial condition and results of operations of the combined company. In addition, even if the operations of the businesses of LHC and Almost Family are integrated successfully, the full benefits of the
transaction may not be realized, including the synergies, cost savings, growth opportunities or cash flows that are expected, and the combined company will also be subject to additional risks that could impact future earnings, such as foreign
currency exchange risks, among others. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration of the businesses of LHC and Almost Family. All of
these factors could cause dilution of the earnings per share of the combined company, decrease or delay the expected accretive effect of the merger, negatively impact the price of the combined companys stock, impair the ability of the combined
company to return capital to its stockholders or have a material adverse effect on the business, financial condition and results of operations of the combined company.
The merger may not be accretive and may cause dilution of the combined companys adjusted earnings per share, which may negatively affect the
market price of the combined companys common stock.
LHC and Almost Family currently anticipate that the merger will be
accretive to stockholders on an adjusted earnings per share basis in 2018. This expectation is based on preliminary estimates, which may materially change. The combined company could also encounter additional transaction and integration-related
costs or other factors such as the failure to realize all of the benefits anticipated in the merger. All of these factors could cause dilution of the combined companys adjusted earnings per share or decrease or delay the expected accretive
effect of the merger and cause a decrease in the market value of the combined companys common stock.
The unaudited pro forma combined
financial information included in this joint proxy statement/prospectus may not be indicative of what the combined companys actual financial position or results of operations would have been.
The unaudited pro forma combined financial information included in this joint proxy statement/prospectus is presented solely for illustrative
purposes and is not necessarily indicative of what the combined companys actual financial position or results of operations would have been had the merger been completed on the dates indicated. This unaudited pro forma combined financial
information reflects adjustments that were developed using preliminary estimates based on available information and various assumptions and may be revised as additional information becomes available. Accordingly, the final acquisition accounting
adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus.
The future results of the
combined company will suffer if the combined company does not effectively manage its expanded operations following the merger.
Following the merger, the size of the business of the combined company will increase significantly beyond the current size of either LHCs
or Almost Familys business. The combined companys future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management
and monitoring of new operations and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements
and other benefits currently anticipated from the merger.
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The combined company is expected to incur substantial expenses related to the merger and the integration of
LHC and Almost Family.
The combined company is expected to incur substantial expenses in connection with the merger and the
integration of LHC and Almost Family. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue
management, manufacturing, research and development, marketing and benefits. While LHC and Almost Family have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount
or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that the combined company
expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses likely will result in the combined company taking significant charges against earnings following
the completion of the merger, and the amount and timing of such charges are uncertain at present.
The impact of the recent significant federal tax
reform on the combined company is uncertain and may significantly affect the operations of the combined company.
On December 22,
2017, the President signed the Tax Cuts and Jobs Act (the Tax Act) into law. The Tax Act is the most comprehensive tax legislation signed into law in over three decades and makes broad and complex changes to the U.S. tax code. The Tax
Act will significantly change how the combined companys earnings are taxed, including, among other items, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) repealing the corporate alternative minimum tax
(AMT) and changing how existing AMT credits can be utilized; (3) temporarily providing for elective immediate expensing for certain depreciable property; (4) creating a new limitation on the deductibility of interest expense; and (5)
changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. While LHC and Almost Family currently expect the Tax Act to have a long-term positive impact on the combined
companys net income, LHC and Almost Family are continuing to evaluate the impact of the Tax Act on the combined companys business and such impact remains uncertain. Furthermore, the combined companys financial results may be
negatively impacted should tax rates be increased in the future or otherwise adversely affected by changes in allowable expense deductions.
Other Risk Factors of LHC and Almost Family
LHCs and Almost Familys businesses are and will be subject to the risks described above. In addition, LHCs and Almost
Familys businesses are, and will continue to be, subject to the risks described in LHCs Annual Report on Form
10-K
for the fiscal year ended December 31, 2016 and Almost Familys Annual
Report on Form
10-K
for the fiscal year ended December 30, 2016, each as updated by subsequent Quarterly Reports on Form
10-Q
and Current Reports on Form
8-K,
all of which are or will be filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See Where You Can Find More Information beginning on page 155 for the
location of information incorporated by reference in this joint proxy statement/prospectus.
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THE COMPANIES
LHC Group, Inc.
LHC Group, Inc., a Delaware corporation, is a provider of post-acute health care services to patients through its home nursing agencies,
hospice agencies, community-based services agencies and long-term acute care hospitals. As of September 30, 2017, through its wholly- and majority-owned subsidiaries, equity joint ventures and controlled affiliates, LHC operated in 449 service
providers in 27 states within the U.S. LHC operates in four segments: home health services, hospice services, community-based services and facility-based services.
LHCs common stock is listed on the NASDAQ Global Select Market under the symbol LHCG.
The principal executive offices of LHC are located at 901 Hugh Wallis Road South, Lafayette, Louisiana 70508, and its telephone number is
(337) 233-1307.
Almost Family, Inc.
Almost Family, Inc., a Delaware corporation, is a leading provider of home healthcare services and related innovations with operations in 332
locations across 26 states as of September 29, 2017. Almost Family has three segments: home health, other home based services and healthcare innovations. The home health segment provides a comprehensive range of Medicare certified nursing
services to patients in need of recuperative care, typically following a period of hospitalization or care in another type of inpatient facility. The other home based services segment includes personal care and hospice business lines. The personal
care segment provides services in patients homes primarily on an
as-needed,
hourly basis. These services include personal care, medication management, meal preparation, caregiver respite and
homemaking. Hospice services are largely provided in patients homes and generally require specialized hospice nursing skills. Hospice revenues are generated on a per diem basis and are primarily from Medicare. The healthcare innovations
segment includes Almost Familys developmental activity outside of the traditional home health business platform.
Almost
Familys common stock is traded on the NASDAQ (the NASDAQ) under the symbol AFAM.
The principal executive
offices of Almost Family are located at 9510 Ormsby Station Road, Suite 300, Louisville, Kentucky 40223 and its telephone number is (502)
891-1000.
Hammer Merger Sub, Inc.
Hammer Merger Sub, Inc., a wholly owned subsidiary of LHC, is a Delaware corporation that was formed for the sole purpose of effecting the
merger. In the merger, Almost Family will be merged with and into Merger Sub, with Almost Family surviving as a wholly owned subsidiary of LHC.
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THE LHC SPECIAL MEETING
This joint proxy statement/prospectus is being provided to the stockholders of LHC as part of a solicitation of proxies by LHCs board
of directors for use at LHCs special meeting to be held at the time and place specified below and at any properly convened meeting following any adjournments or postponements thereof. This joint proxy statement/prospectus provides stockholders
of LHC with the information they need to know to be able to vote or instruct their vote to be cast at LHCs special meeting.
Date, Time and Place
The special meeting of LHC stockholders is scheduled to be held at LHCs corporate headquarters located
at 901 Hugh Wallis Road South, Lafayette, Louisiana 70508, on March 29, 2018, at 10:00 A.M., local time, subject to any adjournments or postponements thereof.
Purpose of the LHC Special Meeting
At the LHC special meeting, LHC stockholders will be asked to consider and vote on:
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the proposal to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger as contemplated by the merger agreement, a copy of which is included as Annex A to this joint
proxy statement/prospectus;
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the proposal to adopt the amended and restated charter, a copy of which is included at Annex B to this joint proxy statement/prospectus; and
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the proposal to approve any motion to adjourn the LHC special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of LHC common stock
to the Almost Family stockholders pursuant to the merger.
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Completion of the merger is conditioned on, among other things,
approval of the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger by the LHC stockholders.
Recommendation of the Board of Directors of LHC
The LHC board of directors has unanimously (i) determined that the merger agreement, the merger and the other transactions contemplated by
the merger agreement are advisable and fair to and in the best interests of LHC and its stockholders and (ii) approved, authorized, adopted and declared advisable the merger agreement, the merger and the other transactions contemplated by the
merger agreement.
The LHC board of directors unanimously recommends that the LHC stockholders vote:
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FOR the proposal to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger;
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FOR the proposal to adopt the amended and restated charter; and
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FOR the proposal to approve any motion to adjourn the LHC special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of LHC common
stock to the Almost Family stockholders pursuant to the merger.
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LHC Record Date;
Stockholders Entitled to Vote
Only LHC stockholders of record at the close of business on February 2, 2018, the LHC record date for
the LHC special meeting, are entitled to notice of, and to vote at, the LHC special meeting or any adjournments or postponements thereof.
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At the close of business on the LHC record date, there were 18,285,192 shares of LHC
common stock outstanding and entitled to vote at the LHC special meeting. LHC issued and outstanding capital stock consists solely of outstanding shares of LHC common stock. LHC stockholders will have one vote for each share of LHC common stock they
owned on the LHC record date. LHC stockholders may vote such shares in person at the LHC special meeting, through the Internet, by telephone or by a properly executed and delivered proxy card. A list of the names of LHC stockholders of record will
be available for review for any purpose germane to the special meeting at the office of LHCs Secretary 901 Hugh Wallis Road South, Lafayette, Louisiana 70508, during ordinary business hours, for a period of ten days before the special meeting.
The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
Voting by LHCs Directors and Executive Officers
At the close of business on the LHC record date, directors and executive
officers of LHC and their affiliates were entitled to vote 1,914,335 shares of LHC common stock, or approximately 10.5% of the shares of LHC common stock outstanding on that date. We currently expect that LHCs directors and
executive officers will vote any shares they own in favor of the proposal to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger, although no director or officer has entered into any agreement
obligating him or her to do so.
Quorum
Other than an adjustment as set forth below, no business may be transacted at the LHC special meeting unless a quorum is present. Holders of a
majority of the shares of common stock entitled to vote at the LHC special meeting must be present in person or by proxy to constitute a quorum for the transaction of business at the LHC special meeting. If a quorum is not present, the special
meeting may be adjourned by the holders of a majority of the outstanding shares of common stock entitled to vote and present in person or by proxy at the special meeting to allow additional time for obtaining additional proxies. At any subsequent
reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the
subsequent meeting.
Abstentions will be included in the calculation of the number of shares of LHC common stock present at the special
meeting for purposes of determining whether a quorum has been achieved. However, broker
non-votes
will not be so included.
Required Vote
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Share issuance proposal:
Approval of this proposal requires the affirmative vote of holders of a majority of the outstanding shares of LHC common stock present in person or represented by proxy at the LHC special
meeting and entitled to vote on this proposal.
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Adoption of amended and restated charter proposal
: Approval of this proposal requires the affirmative vote of holders of a majority of the outstanding shares of LHC common stock entitled to vote on the proposal.
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Adjournment of special meeting proposal:
Approval of this proposal requires the affirmative vote of holders of a majority of the outstanding shares of LHC common stock present in person or represented by proxy at
the LHC special meeting and entitled to vote on this proposal.
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Abstentions and Failure to Vote
For purposes of the LHC special meeting, a vote to abstain or a failure to vote will have the following effect on the proposals to be
voted on at the LHC special meeting:
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Share issuance proposal:
An abstention will have the same effect as a vote AGAINST this proposal. A failure to vote will have no effect on the outcome of any vote on this proposal;
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Adoption of amended and restated charter proposal:
An abstention and failure to vote will have the same effect as a vote AGAINST this proposal; and
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Adjournment of special meeting proposal:
An abstention will have the same effect as a vote AGAINST this proposal. A failure to vote will have no effect on the outcome of any vote on this proposal.
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Please see the section entitled Shares Held in (Street Name) below for a discussion concerning the
effect of broker
non-votes
on each of the proposals identified above.
Voting of Proxies by Holders of Record
If you are a holder of record, a proxy card is enclosed for your use. LHC requests that you submit a proxy via the Internet by logging
onto www.voteproxy.com and following the instructions on your proxy card, by telephone by dialing 1-800-PROXIES and listening for further directions or by signing the enclosed proxy card and returning it promptly in the enclosed
postage-paid envelope. When the enclosed proxy card is returned properly executed, the shares of LHC common stock represented by it will be voted at the LHC special meeting or any adjournment or postponement thereof in accordance with the
instructions contained in the proxy card.
If a signed proxy card is returned without an indication as to how the shares of LHC common
stock represented are to be voted with regard to a particular proposal, the LHC common stock represented by the proxy card will be voted in accordance with the recommendation of the LHC board of directors and therefore FOR the proposal to approve
the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger, FOR the proposal to adopt the amended and restated charter and FOR the proposal to approve any motion to adjourn the LHC special meeting, if
necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger. At the date hereof, management has no knowledge
of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in LHCs Notice of
Special Meeting of Stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the enclosed form of proxy card and acting thereunder will vote in accordance with their
best judgment on such matter.
Your vote is important. Accordingly, please sign and return the enclosed proxy card whether or not you
plan to attend the LHC special meeting in person. Proxies submitted through the specified Internet website or by telephone must be received by 11:59 p.m., Central Time, on March 28, 2018.
Shares Held in Street Name
If you hold your LHC shares in a stock brokerage account or if your shares are otherwise held of record by a bank, broker, trust company,
trustee or other nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares in order for your shares to be voted at the LHC special meeting. Please follow the voting
instructions provided by your bank, broker, trustee or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to LHC or by voting in person at the LHC special meeting unless you
have a legal proxy, which you must obtain from your bank, broker, trust company, trustee or other nominee.
Brokers who hold
shares of LHC common stock on behalf of their customers may not give a proxy to LHC to vote those shares without specific instructions from their customers. If you are a LHC stockholder and you do not instruct your broker on how to vote your shares,
your broker may not vote your shares on any of the proposals to be voted on at the LHC special meeting. This is called a broker
non-vote.
Broker
non-votes
will have no effect on the outcome of any vote on the proposal to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger and the proposal to approve any motion to
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adjourn the LHC special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of LHC common stock to the Almost
Family stockholders pursuant to the merger. Broker
non-votes
will have the effect of a vote AGAINST the proposal to adopt the amended and restated charter. Because none of the proposals to be voted on at the
LHC special meeting are routine matters for which brokers have discretionary authority, LHC does not expect there to be any broker
non-votes
at its special meeting.
Revocation of Proxies
If you are the record holder of LHC stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the special
meeting. You can do this by:
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timely delivering a signed written notice of revocation to the Secretary of LHC;
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timely delivering a new, valid proxy bearing a later date by submitting instructions through the Internet, by telephone or by mail as described on the proxy card; or
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attending the LHC special meeting and voting in person, which will automatically cancel any proxy previously given, or revoking your proxy in person. Simply attending the LHC special meeting without voting will not
revoke any proxy that you have previously given or change your vote.
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A registered stockholder may revoke a proxy by any of
these methods, regardless of the method used to deliver the stockholders previous proxy.
Written notices of revocation and other
communications with respect to the revocation of proxies should be addressed as follows:
LHC Group, Inc.
901 Hugh Wallis Road South
Lafayette, Louisiana 70508
Attention: Secretary
Please note
that if your shares are held in street name through a broker, bank, employee benefit plan trustee or other nominee, you may change your vote by submitting new voting instructions to your broker, bank, trustee or other nominee in
accordance with its established procedures. If your shares are held in the name of a broker, bank, trustee or other nominee and you decide to change your vote by attending the special meeting and voting in person, your vote in person at the special
meeting will not be effective unless you have obtained and present an executed proxy issued in your name from your broker, bank, trustee or other nominee.
Tabulation of Votes
LHC has appointed American Stock Transfer & Trust Company, LLC (AST) to serve as the inspector of election for the LHC special
meeting. AST will independently tabulate affirmative and negative votes and abstentions.
Solicitation of
Proxies
LHC is soliciting proxies for the LHC special meeting, and in accordance with the merger agreement, the cost of proxy
solicitation will be borne by LHC. In addition to solicitation by use of mails, proxies may be solicited by LHC directors, officers and employees in person or by telephone or other means of communication. These individuals will not be additionally
compensated but may be reimbursed for
out-of-pocket
expenses associated with solicitation. Arrangements will also be made with brokers, banks, trustees and other
nominees for forwarding of proxy solicitation material to beneficial owners of LHC common stock held of record, and LHC may reimburse these individuals for their reasonable expenses.
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To help assure the presence in person or by proxy of the largest number of stockholders possible,
LHC has engaged Okapi Partners LLC (Okapi), a proxy solicitation firm, to solicit proxies on LHCs behalf. LHC has agreed to pay Okapi a proxy solicitation fee of up to $20,000, plus reasonable expenses for its services.
Adjournments
Any adjournment of the special meeting may be made by approval of the holders of a majority of the outstanding shares of common stock entitled
to vote at and present in person or by proxy at the special meeting, whether or not a quorum exists. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time
of the special meeting to approve the proposal to issue shares of LHC common stock to the Almost Family stockholders pursuant to the merger or the proposal to adopt the amended and restated charter, then LHC stockholders may be asked to vote on the
proposal to approve any motion to adjourn the special meeting so as to permit the further solicitation of proxies. No notice of an adjourned meeting need be given, other than announcement at the meeting, unless the adjournment is for more than 30
days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
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THE ALMOST FAMILY SPECIAL MEETING
This joint proxy statement/prospectus is being provided to the stockholders of Almost Family as part of a solicitation of proxies by Almost
Familys board of directors for use at Almost Familys special meeting to be held at the time and place specified below and at any properly convened meeting following any adjournments or postponements thereof. This joint proxy
statement/prospectus provides stockholders of Almost Family with the information they need to know to be able to vote or instruct their vote to be cast at Almost Familys special meeting
.
Date, Time and Place
The special meeting of Almost Family stockholders is scheduled to be held at Almost Familys headquarters located at 9510 Ormsby Station
Road, Suite 300, Louisville, KY 40223, on March 29, 2018 at 11:00 A.M., local time, subject to any adjournments or postponements thereof.
Purpose of the Almost Family Special Meeting
At the Almost Family special meeting, Almost Family stockholders will be asked to consider and vote on:
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the proposal to adopt the merger agreement, which is further described in the sections titled LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Adoption of the Merger
Agreement The Merger and LHC Proposal I: Approval of the Share Issuance and Almost Family Proposal I: Adoption of the Merger Agreement The Merger Agreement, beginning on pages 61 and 116,
respectively, and a copy of which is included as Annex A to this joint proxy statement/prospectus;
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the proposal to approve, on a
non-binding
advisory basis, specific compensatory arrangements relating to the merger between Almost Family and its named executive officers; and
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the proposal to approve any motion to adjourn the Almost Family special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement.
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Completion of the merger is conditioned on, among other things, adoption of the merger agreement by the Almost Family
stockholders.
Recommendation of the Board of Directors of Almost Family
The Almost Family board of directors has unanimously (i) determined that the merger agreement, the merger and the other transactions
contemplated by the merger agreement are advisable and fair to and in the best interests of Almost Family and its stockholders and (ii) approved, authorized, adopted and declared advisable the merger agreement, the merger and the other
transactions contemplated by the merger agreement.
The Almost Family board of directors unanimously recommends that Almost Family
stockholders vote:
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FOR the proposal to adopt the merger agreement;
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FOR the proposal to approve, on a
non-binding
advisory basis, specific compensatory arrangements relating to the merger between Almost Family and its named executive officers;
and
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FOR the proposal to approve any motion to adjourn the Almost Family special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement.
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Almost Family Record Date; Stockholders Entitled to Vote
Only holders of record of Almost Family common stock at the close of business on February 2, 2018, the record date for the Almost Family
special meeting, will be entitled to notice of, and to vote at, the Almost Family special meeting or any adjournments or postponements thereof.
At the close of business on the Almost Family record date, 13,991,588 shares of Almost Family common stock were issued and
outstanding and entitled to vote at the Almost Family special meeting. Almost Family issued and outstanding capital stock consists solely of outstanding shares of Almost Family common stock. Holders of record of Almost Family common stock on the
Almost Family record date are entitled to one vote per share at the Almost Family special meeting on each proposal. A list of stockholders of Almost Family will be available for review at the office of Almost Familys Secretary at 9510 Ormsby
Station Road, Suite 300, Louisville, KY 40223, during usual business hours for a period of ten days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the
special meeting.
Voting by Almost Familys Directors and Executive Officers
At the close of business on the Almost Family record date, directors and executive officers of Almost Family and their affiliates were entitled
to vote 1,191,238 shares of Almost Family common stock, or approximately 8.5% of the shares of Almost Family common stock outstanding on that date. We currently expect that Almost Familys directors and executive officers will
vote any shares they own in favor of each proposal being submitted to a vote of the Almost Family stockholders at the Almost Family special meeting, although no director or officer has entered into any agreement obligating him or her to do so.
Quorum
No business may be transacted at the Almost Family special meeting unless a quorum is present. Holders of a majority of the shares of common
stock entitled to vote at the Almost Family special meeting must be represented in person or by proxy at the Almost Family special meeting to constitute a quorum for the transaction of business at the meeting. If there are insufficient shares
represented in person or by proxy at the Almost Family special meeting to constitute a quorum, the chairman of the board of directors of Almost Family shall adjourn the special meeting to another time and place. At any subsequent reconvening of the
special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent meeting.
Abstentions will be included in the calculation of the number of shares of Almost Family common stock represented at the special meeting
for purposes of determining whether a quorum has been achieved. However, broker
non-votes
will not be included in the calculation of the number of shares of Almost Family common stock represented at the
special meeting for purposes of determining whether a quorum has been achieved.
Required Vote
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Merger agreement proposal:
Approval of this proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Almost Family common stock entitled to vote on this proposal.
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Non-binding,
advisory, merger-related compensation proposal:
Approval of this proposal requires the affirmative vote of holders of a majority of the outstanding shares of Almost Family common stock present in person or represented by proxy at the Almost Family special meeting and entitled to vote on this
proposal. Because the vote regarding these specific merger-related compensatory arrangements between Almost Family and its named executive officers is advisory only, it will not be binding on Almost Family or, following completion of the merger, the
combined company. Accordingly, if the merger is completed, the Almost Family named executive officers will be eligible to receive the
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various merger-related compensation that may become payable in connection with the completion of the merger, subject only to the conditions applicable thereto, regardless of the outcome of the
non-binding,
advisory vote of the Almost Family stockholders.
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Adjournment of special meeting proposal:
Approval of this proposal requires the affirmative vote of holders of a majority of the outstanding shares of Almost Family common stock present in person or represented
by proxy at the Almost Family special meeting and entitled to vote on this proposal.
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Abstentions and Failure to Vote
For purposes of the Almost Family special meeting, a vote to abstain or a failure to vote will have the following effect on the proposals to be
voted on at the Almost Family special meeting:
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Merger agreement proposal:
An abstention or failure to vote will have the same effect as a vote AGAINST the proposal;
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Non-binding,
advisory, merger-related compensation proposal:
An abstention will have the same effect as a vote AGAINST this proposal. A failure to vote will have no effect
on the outcome of any vote on this proposal; and
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Adjournment of special meeting proposal:
An abstention will have the same effect as a vote AGAINST the proposal. A failure to vote will have no effect on the outcome of any vote on this proposal.
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Please see the section entitled Shares Held in (Street Name) below for a discussion concerning the
effect of broker
non-votes
on each of the proposals identified above.
Voting of Proxies by Holders of Record
If you are a holder of record, a proxy card is enclosed for your use. Almost Family requests that you submit a proxy via the Internet by
logging onto
www.investorvote.com/AFAM
and following the instructions on your proxy card, by telephone by dialing 1-800-652-VOTE (8683) and listening for further directions or by signing the enclosed proxy card and
returning it promptly in the enclosed postage-paid envelope. When the enclosed proxy card is returned properly executed, the shares of Almost Family common stock represented by it will be voted at the Almost Family special meeting or any adjournment
or postponement thereof in accordance with the instructions contained in the proxy card.
If a signed proxy card is returned without an
indication as to how the shares of Almost Family common stock represented are to be voted with regard to a particular proposal, the Almost Family common stock represented by the proxy card will be voted in accordance with the recommendation of the
Almost Family board of directors and therefore FOR the proposal to adopt the merger agreement, FOR the proposal to approve, on a
non-binding
advisory basis, specific compensatory arrangements relating to the
merger between Almost Family and its named executive officers and FOR the proposal to approve any motion to adjourn the Almost Family special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to
adopt the merger agreement. At the date hereof, management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement/prospectus or the
related proxy card other than the matters set forth in Almost Familys Notice of Special Meeting of Stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the
enclosed form of proxy card and acting thereunder will vote in accordance with their best judgment on such matter.
Your vote is
important. Accordingly, please sign and return the enclosed proxy card whether or not you plan to attend the Almost Family special meeting in person. Proxies submitted through the specified Internet website or by telephone must be received by 11:59
p.m., Eastern Time, on March 28, 2018.
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Shares Held in Street Name
If you hold your Almost Family shares in a stock brokerage account or if your shares are otherwise held of record by a bank, broker, trust
company, trustee or other nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares in order for your shares to be voted at the Almost Family special meeting. Please
follow the voting instructions provided by your bank, broker, trustee or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Almost Family or by voting in person at the Almost
Family special meeting unless you have a legal proxy, which you must obtain from your bank, broker, trust company, trustee or other nominee.
Brokers who hold shares of Almost Family common stock on behalf of their customers may not give a proxy to Almost Family to vote those shares
without specific instructions from their customers. If you are an Almost Family stockholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares on any of the proposals to be voted on at the Almost
Family special meeting. This is called a broker
non-vote.
Broker
non-votes
will have the same effect as a vote AGAINST the merger agreement proposal and will
have no effect on the outcome of any vote on the advisory,
non-binding,
merger-related compensation proposal or the special meeting adjournment proposal. Because none of the proposals to be voted on at the
Almost Family special meeting are routine matters for which brokers have discretionary authority, Almost Family does not expect there to be any broker
non-votes
at its special meeting.
Revocation of Proxies
If you are the record holder of Almost Family stock, you can change your vote or revoke your proxy at any time before your proxy is voted at
the special meeting. You can do this by:
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timely delivering a signed written notice of revocation to the Secretary of Almost Family;
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timely delivering a new, valid proxy bearing a later date by submitting instructions through the Internet, by telephone or by mail as described on the proxy card; or
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attending the Almost Family special meeting and voting in person, which will automatically cancel any proxy previously given, or revoking your proxy in person. Simply attending the Almost Family special meeting without
voting will not revoke any proxy that you have previously given or change your vote.
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A registered stockholder may revoke a
proxy by any of these methods, regardless of the method used to deliver the stockholders previous proxy.
Written notices of
revocation and other communications with respect to the revocation of proxies should be addressed as follows:
Almost Family, Inc.
9510 Ormsby Station Road, Suite 300
Louisville, KY 40223
Please note
that if your shares are held in street name through a broker, bank, employee benefit plan trustee or other nominee, you may change your vote by submitting new voting instructions to your broker, bank, trustee or other nominee in
accordance with its established procedures. If your shares are held in the name of a broker, bank, trustee or other nominee and you decide to change your vote by attending the special meeting and voting in person, your vote in person at the special
meeting will not be effective unless you have obtained and present an executed proxy issued in your name from your broker, bank, trustee or other nominee.
Tabulation of Votes
Almost Family has appointed Computershare to serve as the inspector of election for the Almost Family special meeting. Computershare will
independently tabulate affirmative and negative votes and abstentions.
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Solicitation of Proxies
Almost Family is soliciting proxies for the Almost Family special meeting, and in accordance with the merger agreement, the cost of proxy
solicitation will be borne by Almost Family. In addition to solicitation by use of mails, proxies may be solicited by Almost Family directors, officers and employees in person or by telephone or other means of communication. These individuals will
not be additionally compensated but may be reimbursed for
out-of-pocket
expenses associated with solicitation. Arrangements will also be made with brokers, banks,
trustees and other nominees for forwarding of proxy solicitation material to beneficial owners of Almost Family common stock held of record, and Almost Family may reimburse these individuals for their reasonable expenses.
To help assure the presence in person or by proxy of the largest number of stockholders possible, Almost Family has engaged Innisfree M&A
Incorporated (Innisfree), a proxy solicitation firm, to solicit proxies on Almost Familys behalf. Almost Family has agreed to pay Innisfree a proxy solicitation fee of $25,000. Almost Family will also reimburse Innisfree for its
reasonable
out-of-pocket
costs and expenses.
Adjournments
An adjournment of the Almost Family special meeting may be made: (i) if a quorum is not present, by the chairman
of the Almost Family board of directors, or, (ii) if a quorum is present, by the affirmative vote of the holders of a majority of the outstanding shares of Almost Family common stock present in person or represented by proxy at the Almost
Family special meeting and entitled to vote on the adjournment proposal. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to
approve the proposal to adopt the merger agreement, then Almost Family stockholders may be asked to vote on the proposal to approve any motion to adjourn the special meeting so as to permit the further solicitation of proxies. No notice of an
adjourned meeting, other than announcement at the meeting, need be given unless the adjournment is for more than 30 days or if after the adjournment a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the meeting.
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LHC PROPOSAL I: APPROVAL OF THE SHARE ISSUANCE AND
ALMOST FAMILY PROPOSAL I: ADOPTION OF THE MERGER AGREEMENT
This joint proxy statement/prospectus is being provided to LHC stockholders in connection with the solicitation of proxies by the LHC board of
directors to be voted at the LHC special meeting and at any adjournments or postponements of the LHC special meeting. At the LHC special meeting, LHC will ask LHC stockholders to vote on (i) a proposal to approve the issuance of shares of LHC
common stock to the Almost Family stockholders pursuant to the merger, (ii) a proposal to adopt the amended and restated charter and (iii) a proposal to approve any motion to adjourn the LHC special meeting, if necessary or appropriate, to
solicit additional proxies if there are not sufficient votes to approve the share issuance at the time of the LHC special meeting.
This
joint proxy statement/prospectus is being provided to Almost Family stockholders in connection with the solicitation of proxies by the Almost Family board of directors to be voted at the Almost Family special meeting and at any adjournments or
postponements of the Almost Family special meeting. At the Almost Family special meeting, Almost Family stockholders will be asked to consider and vote on (i) a proposal to adopt the merger agreement, (ii) a
non-binding,
advisory proposal to approve the compensation that may be paid or become payable to Almost Familys named executive officers in connection with the completion of the merger and (iii) a
proposal to approve any motion to adjourn the Almost Family special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the Almost Familys special
meeting.
The Merger
The following is a description of the material aspects of the merger, including the merger agreement. While we believe that the following
description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read this joint proxy statement/prospectus carefully and in its entirety, including the merger
agreement which is included as Annex A to this joint proxy statement/prospectus, for a more complete understanding of the merger.
Effects of the Merger
Upon the terms and subject to the conditions of the merger agreement and in accordance with Delaware law, at
the effective time of the merger, Merger Sub, a wholly owned subsidiary of LHC Group and a party to the merger agreement, will merge with and into Almost Family. Almost Family will be the surviving entity in the merger and become a wholly owned
subsidiary of LHC Group. The merger will become effective at the date and time specified in the certificate of merger to be filed with the Secretary of State of the State of Delaware.
At the effective time of the merger, each outstanding share of Almost Family common stock (other than shares held by Almost Family, by any
wholly owned subsidiary of Almost Family, by Almost Family as treasury shares, by LHC Group or by any wholly owned subsidiary of LHC Group, all of which will be canceled and retired and cease to exist) will be converted into the right to receive
0.9150 fully paid and nonassessable shares of LHC Group common stock, with cash paid in lieu of fractional shares. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger.
LHC Group stockholders will not receive any merger consideration and will continue to hold their shares of LHC Group common stock after the
merger.
LHC Group and Almost Family are working to complete the merger as soon as practicable and expect the closing of the merger to
occur in the first half of 2018. However, the merger is subject to antitrust clearances and the satisfaction or waiver of other conditions, and it is possible that factors outside the control of LHC Group and Almost Family could result in the merger
being completed at an earlier time, at a later time or not at all. There may be a substantial amount of time between the LHC and Almost Family special meetings and the completion of the merger.
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Background of the Merger
The Almost Family board of directors and senior management regularly evaluate and assess Almost Familys financial performance, prospects
and growth opportunities, as well as strategies to enhance shareholder value, including opportunities to expand into new markets, enhance the services it provides to its customers and its overall position in the home healthcare, hospice and personal
care industries. In connection with these reviews and assessments, the Almost Family board of directors and senior management regularly evaluate potential strategic alternatives relating to Almost Family and its business, including possible
acquisitions, divestitures and business combination transactions.
LHCs board of directors and senior management also regularly
evaluate and assess LHCs financial performance, prospects and growth opportunities, as well as strategies to enhance stockholder value, including opportunities to expand into new markets, enhance the services it provides to its customers and
its overall position in the home healthcare, hospice and personal care industries. In connection with these reviews and assessments, LHCs board of directors and senior management regularly evaluate potential strategic alternatives relating to
LHC and its business, including possible acquisitions, divestitures and business combination transactions.
Furthermore, as part of their
respective growth strategies, each of LHC and Almost Family has completed numerous acquisitions and joint ventures over the past decade.
Over the course of several years, Keith Myers, LHCs chief executive officer and chairman, and William Yarmuth, Almost Familys
chief executive officer and chairman, developed a professional relationship from working together on a number of regulatory issues affecting the home health care industry, including most recently with respect to the Centers for Medicare &
Medicaid Services (CMS) new rules around payment policies, payment rates, and quality provisions for services (collectively, the New CMS Rules).
Consistent with LHCs growth strategies, at various times over the prior years, Mr. Myers has discussed with Mr. Yarmuth the
possibility of a business combination between their respective companies, but conversations about a potential business combination between the two companies were preliminary in nature and never pursued by either company.
During the summer of 2017, Mr. Myers began discussing a potential strategic transaction involving Almost Family with members of the
corporate development committee of the LHC board of directors and other members of LHCs senior management, who generally expressed their support for further exploration by LHC senior management of a potential transaction with Almost Family.
In July 2017, LHC approached Jefferies, based on Jefferies familiarity with its business, Jefferies significant experience in
the home health, hospice and personal care industries and Jefferies experience in mergers and acquisitions transactions, to assist it in its evaluation of Almost Family and a potential business combination with Almost Family.
Throughout late July and early August 2017, LHC senior management with the assistance of Jefferies reviewed Almost Familys financial
performance using publicly available information. Based on this preliminary review and the belief that a business combination between the two companies could create substantial value for the stockholders of LHC and Almost Family, Mr. Myers had
a teleconference with Mr. Yarmuth on August 8, 2017 to discuss, among other things, LHCs possible interest in exploring a potential business combination with Almost Family.
Following the August 8, 2017 discussion, Mr. Yarmuth discussed the potential business combination with members of Almost
Familys board of directors to seek their input on the potential transaction with LHC and appropriate next steps and such members expressed support for continued discussion with respect to the potential business combination. Mr. Yarmuth also
held discussions with a limited number of senior management of Almost Family to inform them of his discussions with Mr. Myers regarding a possible business combination.
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In connection with these discussions, Mr. Yarmuth spoke with a representative of Guggenheim
Securities to discuss the possible engagement of Guggenheim Securities to provide financial advisory services to Almost Family in connection with a strategic transaction involving LHC. Mr. Yarmuth contacted Guggenheim Securities because of
Almost Familys previous work with Guggenheim Securities and Guggenheim Securities familiarity with its business, Guggenheim Securities significant experience in the home health, hospice and personal care industries and Guggenheim
Securities experience in mergers and acquisition transactions.
Following the August 8, 2017 discussion, Mr. Myers
instructed Jefferies and LHCs senior management team to outline the potential terms of the possible business combination. Throughout the following week, LHC senior management and Jefferies conducted further analysis around a potential business
combination with Almost Family and the potential terms for such a transaction.
Also throughout the first two weeks of August 2017,
Mr. Myers spoke individually with certain members of the corporate development committee of the LHC board of directors to provide them with updates on his conversation with Mr. Yarmuth regarding the potential business combination and to
seek their input on certain matters related to the potential transaction.
Throughout the months of August and September, Mr. Yarmuth
briefed the individual directors of Almost Family with respect to the ongoing discussions with LHC.
On August 14, 2017,
representatives of LHC had a teleconference call with representatives of Almost Family to have further preliminary conversations around a potential business combination transaction. During the call, representatives from each party confirmed their
partys interest in further exploring and discussing a potential business combination between the parties.
Over the course of the
next few days, members of LHCs senior management team and Jefferies discussed the potential terms of the business combination.
On
August 17, 2017, representatives of Jefferies, at the direction of LHC, had a teleconference call with representatives of Guggenheim Securities, who participated at the direction of Almost Family, to provide Almost Family with the preliminary
terms of the potential business combination. Jefferies, at the direction of LHC, outlined to Guggenheim Securities a business combination transaction with a consideration mix of 90% LHC common stock and 10% cash, pursuant to which the Almost Family
stockholders would own 35% of the outstanding shares of the combined company and which aggregate consideration represented a 7.5% premium over Almost Familys then-current share price. Jefferies also discussed LHCs preliminary synergy
analysis with Almost Family.
Almost Familys senior management reviewed, with the assistance of Guggenheim Securities, LHCs
proposal and conducted further analysis of the proposed business combination.
Following such review and analysis, on August 18,
2017, representatives of Guggenheim Securities, at the direction of Almost Family, had a teleconference call with representatives of Jefferies to discuss the LHC proposal further. On this call, as instructed by Almost Family, representatives of
Guggenheim Securities noted that Almost Family would be interested in considering a potential merger of equals transaction with LHC, but the Almost Family board would require terms that would provide the Almost Family stockholders with a higher
ownership percentage of the combined company.
Jefferies discussed its August 18 call with representatives of Guggenheim Securities,
including Almost Familys insistence on an increased ownership percentage of the combined company for the Almost Family stockholders, with Mr. Myers and Joshua Proffitt, LHCs executive vice president and chief financial officer, and
over the weekend of August 19, 2017, Mr. Proffitt and Jefferies conducted further analysis of the proposed business combination. Following discussions between Mr. Myers, Mr. Proffitt and Jefferies, LHC instructed Jefferies to
communicate to Guggenheim Securities revised transaction terms, which provide for a merger of equals transaction with 100% stock consideration that would result in the LHC stockholders owning 60% of the combined company and Almost Family
stockholders owning 40% of the combined company, which represented an implied premium of 15.8% over Almost Familys August 18, 2017 share price.
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On August 21, 2017, representatives from Jefferies, at the direction of LHC, communicated
the terms of the revised LHC proposal to representatives of Guggenheim Securities.
On August 23, 2017, representatives from
Guggenheim Securities discussed the revised LHC proposal with representatives of Almost Familys senior management team.
On
August 24, 2017, the LHC board of directors held a regularly scheduled meeting in Lafayette, LA. During this regularly scheduled meeting, each of the corporate development committee of the board as well as the full board met and each reviewed
managements consideration of and strategic rationale for a potential business combination with Almost Family and discussed the potential terms, timing of and process for such a transaction and certain related matters. Members of LHCs
senior management attended the meetings. All of the directors were present at the meeting. Mr. Myers and Mr. Proffitt provided an overview of the prior discussions between LHC and Almost Family with respect to a potential business
combination between the companies, the business rationale for such a transaction and an update on the current status and proposed structure of the potential transaction. Mr. Proffitt then discussed with the LHC board of directors the
boards fiduciary duties in the context of the potential transaction as well as confidentiality obligations and trading considerations and provided the LHC board of directors with an overview of the process for a potential merger of equals
transaction with Almost Family and preliminary financial perspectives regarding Almost Family.
Following further discussion, the LHC
board of directors noted the strategic benefits of the potential business combination and agreed that it was advisable to continue to explore the potential business combination with Almost Family.
On August 25, 2017, following discussion of the same with Mr. Proffitt and at Mr. Proffitts direction, Jefferies
distributed an initial diligence request list, illustrative transaction timeline and a draft mutual confidentiality agreement, to Guggenheim Securities, who relayed these items to Almost Familys senior management team. Over the course of the
following two weeks, the parties negotiated the terms of the mutual confidentiality agreement and provided updates to the proposed diligence request list and timeline.
Throughout the second half of August and September, Mr. Yarmuth continued to regularly update the individual directors of Almost Family
in order to update them about the outreach from LHC regarding a potential transaction and the status of discussions with respect thereto, including the terms proposed by LHC. During this same time period, Mr. Myers had a series of similar
conversations with individual directors of LHC to update them on the status of his discussions with Almost Family regarding a potential transaction.
On September 7, 2017, Mr. Myers and Mr. Yarmuth met in Washington DC for a further discussion of the proposed merger of equals
transaction. At this meeting, Mr. Myers and Mr. Yarmuth discussed that their respective companies remained interested in exploring the proposed merger of equals transaction and that both companies executives should meet in person to
further discuss the proposed transaction.
On September 8, 2017, LHC and Almost Family entered into a mutual confidentiality
agreement that included customary standstill provisions applicable to each party in connection with the confidential exchange of information and reciprocal due diligence.
Following the execution of the confidentiality agreement through the execution of the merger agreement, Mr. Yarmuth and Mr. Myers
had regular telephone conversations regarding the status and potential terms of the potential transaction, including the impact of any proposed changes in healthcare regulations including the New CMS Rules.
Over the course of the next week, LHC, Almost Family and their financial advisors conducted preliminary diligence and synergy analysis.
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On September 15, 2017, Mr. Myers and Mr. Proffitt met with
Mr. Yarmuth, C. Steven Guenthner, Almost Familys president and chief financial officer, and Todd Lyles, Almost Familys chief administrative officer in Louisville, KY to further discuss the potential merger of equals transaction
between the two companies. At this meeting the participants discussed the companies respective businesses, operations and business processes and discussed differences and commonalities in operating and strategic plans, management philosophies
and expense structures. Among other things, the participants noted that the combination of the two companies could benefit both companies by expanding and diversifying their geographic footprint, which could enable greater service and continuity
across the continuum of care and provide a stronger foundation for the companies to pursue multiple channels of growth across this expanded footprint. Additionally, they discussed the strategic merit of the combined businesses from each of the home
health, hospice, personal care and health care innovation perspectives. The representatives also discussed preliminary financial projections for both companies as well as anticipated synergies resulting from the transaction. The potential New CMS
Rules were also discussed, including each partys anticipated timing and content of the New CMS Rules.
On September 18, 2017,
Mr. Myers and Mr. Yarmuth spoke by telephone to discuss the September 15
th
meeting and both agreed that they would instruct their respective financial advisors to coordinate next
steps as the companies continue to explore the proposed transaction.
Over the course of the next two weeks, the LHC and Almost Family
management teams worked together to develop an updated synergy analysis and each management team also did further work to develop five year financial forecasts for their respective companies.
During the week of October 2, 2017, each of LHC and Almost Family provided the other company with its five year financial forecasts and
LHC and Almost Family, together with their respective financial advisors, had a call on October 8, 2017 to discuss the respective forecasts and the assumptions underlying the forecasts.
On October 9, 2017, members of LHCs senior management team had a call with representatives from Jefferies and Alston & Bird LLP
(Alston), LHCs legal counsel, to discuss the proposed term sheet prepared by Alston, at LHCs direction, which set forth revised terms for the proposed merger of equals transaction after taking into consideration LHCs
and its financial advisors detailed review of the Almost Family financial forecasts, the LHC financial forecasts and the anticipated synergies from the proposed transaction.
On October 10, 2017, LHC provided Almost Family with this term sheet. Pursuant to these revised terms, LHC and Almost Family would
combine in an
all-stock,
merger of equals transaction that would result in LHC stockholders owning approximately 58.5% of the combined company and the Almost Family stockholders owning approximately 41.5% of
the combined company.
On October 11, 2017, the Almost Family board of directors held a telephonic meeting at which Mr. Yarmuth
provided an update regarding the status of ongoing discussions with LHC and noted that the proposed transaction would be discussed in more detail at a meeting scheduled for later the same week.
On October 13, 2017, the Almost Family board of directors held a regularly scheduled in person meeting to discuss, among other things,
the potential transaction on the terms set forth in the LHC term sheet, at which representatives of Guggenheim Securities were in attendance. Representatives of Frost Brown Todd LLC reminded the directors of their fiduciary duties under applicable
law. At this meeting, Almost Familys management and representatives of Guggenheim Securities discussed the proposed terms of a potential transaction, and Guggenheim Securities presented certain preliminary financial analyses with respect to
Almost Family, LHC and the proposed transaction, which were reviewed by the board. Following these discussions, the Almost Family board of directors noted the strategic benefits of a combination with LHC and unanimously agreed that it was advisable
to continue to explore the merger of equals transaction on the terms outlined in the LHC term sheet. The Almost Family board of directors authorized management to continue discussions and investigations regarding the advisability of the potential
merger of equals transaction.
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Following the Almost Family board meeting, Jefferies and Guggenheim Securities, at the direction
of LHC and Almost Family, respectively, had a call to discuss a timeline for the transaction and the process for due diligence and preparation and negotiation of the necessary legal documentation.
LHCs senior management engaged FTI Consulting (FTI) to consult, advise and assist with due diligence on certain financial,
compliance and regulatory matters regarding the potential transaction, engaged Ernst & Young LLP (E&Y) to consult, advise and assist with due diligence on certain tax matters regarding the potential transaction and engaged
KPMG LLP to review the Almost Family audit work papers in connection with the potential transaction.
During the week of October 16,
2017, each party worked with its respective advisors to finalize the due diligence requests lists and on October 20, 2017 the online data rooms of LHC and Almost Family, respectively, were opened to representatives of the other party and its
respective advisors and the parties exchanged due diligence request lists.
Also during the week of October 16, 2017, Alston prepared
and discussed the draft merger agreement with LHC, and on October 20, 2017, Alston distributed a draft merger agreement to Gibson, Dunn & Crutcher LLP (Gibson Dunn), Almost Familys legal counsel.
Over the course of the next four weeks, LHC and Almost Family and each companys respective representatives conducted further due
diligence reviews of each others businesses, which included review of materials made available in each companys electronic data room and teleconferences to discuss specific due diligence matters and further information requests.
Also, over the course of the next four weeks, the parties exchanged multiple drafts of the merger agreement and negotiated the terms and
conditions of the merger agreement, including, in particular, the structure of the transaction, corporate governance of the combined company, the representations and warranties of the parties, the conditions to the consummation of the merger, the
circumstances in which either LHC or Almost Family could consider unsolicited acquisition proposals of third parties as well as the terms on which LHC and Almost Family might be required to pay a fee or expense reimbursement upon termination of the
merger agreement and the amount of any such termination fee or expense reimbursement, the obligations to satisfy conditions to closing, available remedies to each party in the event of termination or breach of the merger agreement, the definition of
material adverse effect and qualifications to representations and warranties. Furthermore, in connection with the proposed business combination of the two companies, representatives of LHC and Alston discussed with representatives of Almost Family
and Gibson Dunn the advisability and desire of LHC to amend its certificate of incorporation in connection with the transaction to increase the authorized number of shares of common stock of the combined company following the consummation of the
proposed transaction.
On November 1, 2017, CMS issued the New CMS Rules, which were consistent with the expectations of LHC and
Almost Family. Following the issuance of the final New CMS Rules, representatives of LHC and Almost Family agreed to continue to proceed with the proposed transaction.
On November 4 and 5, 2017, Almost Familys senior management team received due diligence updates from its various advisors in
advance of Almost Familys November 6, 2017 board meeting.
On November 6, 2017, the Almost Family board of directors held
a telephonic meeting to receive an update on the potential transaction with LHC. Representatives of Almost Familys senior management, Guggenheim Securities and Gibson Dunn were present. At this meeting, Guggenheim Securities reviewed certain
preliminary financial analysis of Almost Family and LHC and the potential transaction. Members of Almost Familys senior management provided an update on business discussions and legal and business due diligence to date. Representatives of
Gibson Dunn reminded the directors of their fiduciary duties under applicable law. Following this discussion, members of Almost Familys senior management provided an update regarding the due diligence
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review that had been completed to date. Almost Familys senior management and legal counsel discussed the merger agreement and updated the board as to the status of the drafts of the
definitive merger agreement that had been exchanged between the parties, certain open points, including the corporate governance structure of the combined company and the amount of the potential termination fees and expense reimbursements that could
be payable by the parties under certain circumstances. The Almost Family board determined that management, together with Gibson Dunn and Guggenheim Securities, should continue negotiations and discussions with LHC.
On November 8, 2017, representatives of each of the LHC and Almost Family management teams met in person at LHCs headquarters in
Lafayette, LA to discuss synergies, preliminary integration planning and the merger. At this meeting, Mr. Myers and Mr. Yarmuth also agreed to the remaining corporate governance points, including that the board of directors of the combined
company would consist of six LHC designees and four Almost Family designees, with Mr. Myers serving as the chairman of the combined company. Mr. Yarmuth also discussed with Mr. Myers his desire to retire from his role as a director
and executive officer of Almost Family in connection with the proposed transaction and it was agreed that Mr. Yarmuth would serve the combined company as a special advisor. It was also agreed that the executive management team of the combined
company would consist of Mr. Myers as the chief executive officer, Donald D. Stelly, current president and chief operating officer of LHC, as the president and chief operating officer of the combined company, Mr. Proffitt as the chief
financial officer of the combined company and Mr. Guenthner as the chief strategy officer of the combined company and president of Almost Family.
On November 10, 2017, Alston distributed to Gibson Dunn an initial draft of the consulting agreement for Mr. Yarmuth and on
November 11, 2017 distributed to Gibson Dunn an initial draft of the employment agreement for Mr. Guenthner. During the course of the next few days, the parties exchanged additional drafts of the consulting and employment agreements and
negotiated the final terms and conditions thereof.
On November 11, 2017, the LHC board of directors held a special telephonic
meeting regarding the potential transaction. Members of LHCs senior management and representatives of each of Alston, Jefferies, FTI and E&Y also attended the meeting. All of the directors were present at the meeting. In advance of the
meeting, the directors were provided with, among other things, (i) diligence reports from LHCs respective advisors, (ii) a summary of the draft merger agreement and (iii) a presentation from Jefferies. At the outset of the
meeting, a representative from Alston provided the board with an overview of its fiduciary duties in connection with the proposed transaction. Mr. Myers and Mr. Proffitt updated the LHC board of directors regarding discussions and
developments related to the potential transaction. Jefferies then discussed with the LHC board of directors certain financial aspects of the potential transaction and financial matters relating to LHC and Almost Family. As part of this discussion,
LHC management reviewed with the LHC board of directors the strategic rationale and business reasons for the potential transaction, including potential cost and other savings and growth opportunities anticipated to result from the potential
transaction. Following further discussion, a representative of Alston reviewed with the LHC board of directors the terms of the current draft of the merger agreement, including the proposed legal structure of the transaction, the proposed corporate
governance structure of the combined company and a potential amendment and restatement of LHCs certificate of incorporation to increase LHCs authorized shares of common stock in connection with the merger. The board then received an
overview of the due diligence process and results of the due diligence review from LHCs advisors, including FTI, E&Y and Alston. A discussion ensued regarding the proposed transaction with Almost Family, including numerous questions
regarding the due diligence reports. Following further discussions, the LHC Board determined that LHC should continue to pursue the proposed transaction on the terms outlined to the board.
On November 12, 2017, the Almost Family board of directors held a telephonic meeting to receive an update on the potential transaction
with LHC. Representatives of Almost Familys senior management, Guggenheim Securities and Gibson Dunn were present. At this meeting, Guggenheim Securities reviewed its preliminary financial analysis of Almost Family and LHC and the potential
transaction and indicated to the Almost Family board of directors that it would be prepared to render a fairness opinion. Members of Almost Familys senior management provided an update on business discussions and final legal and business due
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diligence. The Almost Family board authorized management and its advisors to continue finalizing negotiations with LHC.
Also on November 12, 2017, LHC, Almost Family and their respective advisors held a conference call to begin preparing a joint public
relations strategy for the potential public announcement of the transaction. Over the course of the following week, LHC, Almost Family and their respective advisors prepared, discussed and finalized the various communications with respect to the
potential public announcement of the transaction, including a joint press release, joint investor presentation and employee communications.
On November 14, 2017, members of LHC and Almost Familys finance teams, together with representatives from Jefferies and Guggenheim
Securities, finalized the respective outstanding share numbers for LHC and Almost Family and determined the final exchange ratio based on those share numbers.
On November 14, 2017, LHC distributed to the LHC board of directors the final draft of the merger agreement, an updated summary prepared
by Alston highlighting the resolution of all open items with respect to the merger agreement discussed at the November 11 LHC board meeting, a copy of Jefferies presentation to the LHC board of directors regarding the transaction, final
drafts of the consulting agreement for Mr. Yarmuth, the employment agreement for Mr. Guenthner and the amended and restated LHC certificate of incorporation and a draft of the proposed resolutions approving the transaction.
On November 15, 2017, the Almost Family board of directors held a special meeting, attended by all of the directors. Also in attendance
were members of senior management and representatives from Guggenheim Securities and Gibson Dunn. In advance of the meeting, the directors were provided with, among other things, a final version of the merger agreement and a summary thereof,
Guggenheim Securities presentation materials, which included disclosure as to Guggenheim Securities relationships with each of Almost Family and LHC, and a draft of the proposed resolutions approving the transaction. At this meeting,
Guggenheim Securities reviewed with Almost Familys board of directors Guggenheim Securities financial analysis of the exchange ratio and rendered an oral opinion, confirmed by delivery of a written opinion dated November 15, 2017, to
Almost Familys board of directors to the effect that, as of that date and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the
exchange ratio in connection with the merger was fair, from a financial point of view, to the stockholders of Almost Family (excluding LHC Group and its affiliates). Representatives of Gibson Dunn provided a detailed review of the principal terms of
the merger agreement. A discussion ensued regarding the proposed transaction with LHC. In the course of its deliberations, the Almost Family board of directors considered a number of factors, including those described more fully below under
Almost Familys Reasons for the Merger; Recommendation of the Almost Family Board of Directors. The directors reviewed resolutions furnished to the Almost Family board of directors authorizing the merger, the merger
agreement and the transactions contemplated by the merger agreement. The Almost Family board of directors unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to and in
the best interests of Almost Family and its shareholders, adopted and approved the merger agreement and authorized the appropriate officers of Almost Family to execute and deliver the merger agreement and related documents.
On November 15, 2017, the LHC board of directors held a special telephonic meeting to consider and approve the proposed transaction with
Almost Family. Members of LHCs senior management and representatives of each of Alston and Jefferies also attended the meeting. Representatives of Alston reviewed the merger agreement, including the resolution of the open terms discussed at
the November 11 board meeting. Representatives of Alston also reviewed the terms of the Yarmuth consulting agreement, the Guenthner employment agreement and the amended and restated charter with the Board. Monica Azare, the chairperson of the
boards compensation committee, also discussed the Yarmuth consulting agreement and Guenthner employment agreement and recommended that the board approve both agreements in connection with the merger. Representatives of Alston also provided an
update on the final results of the due diligence process and
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also reminded the LHC board of directors of its fiduciary duties in the context of the potential transaction. Representatives from Alston and Mr. Myers also provided an overview of the
communications plan with respect to the announcement of the potential transaction. Also at this meeting, Jefferies reviewed with the LHC board of directors Jefferiess financial analysis of the exchange ratio and rendered an oral opinion,
confirmed by delivery of a written opinion dated November 15, 2017, to the LHC board of directors to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations
and qualifications on the review undertaken, the exchange ratio was fair, from a financial point of view, to LHC. A representative of Alston then reviewed resolutions approving the merger, the merger agreement and certain related matters with the
LHC board of directors. After discussion, the LHC board of directors unanimously (i) determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best
interests of LHC and its stockholders, (ii) approved, authorized, adopted and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the amended and restated LHC
certificate of incorporation and the Yarmuth consulting agreement and Guenthner employment agreements, (iii) directed that the issuance of shares of LHC common stock to the Almost Family shareholders pursuant to the merger and the amended and
restated LHC certificate of incorporation be submitted for consideration at a meeting of the LHC stockholders and (iv) resolved to recommend the approval of the issuance of shares of the LHC common stock to the Almost Family shareholders
pursuant to the merger and the amended and restated LHC certificate of incorporation by the LHC stockholders.
Later in the day on
November 15, 2017, following the approvals of Almost Familys and LHCs boards of directors, Almost Family and LHC executed the merger agreement.
On the morning of November 16, 2017, LHC and Almost Family issued a joint press release announcing the execution of the merger agreement.
LHCs Reasons for the Merger; Recommendation of the LHC Board of Directors
In evaluating the merger agreement and the merger, the LHC board of directors consulted with LHCs management, as well as with LHCs
legal and financial advisors, and also considered a number of factors including, but not limited to, the following, which the LHC board of directors viewed as supporting its decision to recommend the approval of the issuance of shares of LHC common
stock to the Almost Family stockholders pursuant to the merger:
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its knowledge of LHCs business, operations, financial condition, earnings and prospects, as well as its assessment of Almost Familys business, operations, financial condition, earnings and prospects, taking
into account the results of LHCs due diligence review of Almost Family;
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the belief that the merger will create a leading national
in-home
healthcare provider with over 781 locations across 36 states, diversifying the combined companys services
and geographic footprint, enabling greater service and continuity across the continuum of care and providing the combined company with a strong foundation to pursue multiple channels of growth across its expanded footprint;
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the belief that the combined company will be the only national home health, hospice and personal care provider with a long track record of successfully partnering with hospitals and health systems;
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the belief that there is a strong cultural fit between the two companies, with a shared emphasis on local healthcare and patient-centered care in the home and a history of collaboration amongst the companies
senior leadership on issues affecting the home health care industry, all of which the LHC board of directors believes will reduce the integration risks associated with the combination of the two companies;
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that the locations and business lines of LHC and Almost Family are generally complementary, with limited areas of geographic overlap;
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its belief that the combined company will be well-positioned to lead the transition to value-based reimbursement through the highest quality and patient satisfaction;
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its belief that the combined companys increased range of
in-home
healthcare services and expanded national footprint will position the combined company as the preferred
in-home
healthcare partner to hospitals and health systems providing the combined company with significant opportunities to pursue new joint ventures nationwide;
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that the combined company will be led by a management team with strong operational experience, a proven track record of developing joint ventures with leading hospitals and health systems and successfully pursuing
strategic acquisitions and a history of successful, efficient capital deployment;
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that the combined company will benefit from both companies talented healthcare providers, who possess strong industry relationships and a reputation for driving savings for payors and improving patient outcomes
and experiences;
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that the increased financial strength, low leverage and strong free cash flows of the combined company will better position it to accelerate LHCs strategic initiatives, including acquisitions;
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its belief that the merger will result in multiple opportunities for additional revenue and earnings growth, including (i) a significant pipeline of joint ventures, extensions of existing relationships and
acquisitions, (ii) the ability to leverage technology to extend scale and share best practices to improve operational efficiencies, (iii) increased referrals through improved STAR and quality ratings and increased service offerings, and
(iv) increased service offerings in existing locations;
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that at the time the LHC board of directors approved the merger, the transaction was estimated to achieve at least $25 million in annual
pre-tax
run-rate
cost synergies, primarily from efficiencies related to technology platforms, outsourced professional services, finance and reporting functions, and other administrative functions and without anticipated
location closings;
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that at the time the LHC board of directors approved the merger, the transaction was anticipated to result in a combined company with net revenue of approximately $1.8 billion and adjusted EBITDA of approximately
$145 million, on a pro forma basis for the last twelve months ended September 30, 2017 and without giving any effect to any anticipated synergies or cost savings, and significant free cash flow available to invest in future growth;
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that LHC expects the combined company to have an increased market capitalization and improved access to capital, providing incremental benefits to stockholders; and
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that LHC expects the merger to be generally leverage neutral with the increased size of the combined company and expected synergies improving the credit profile and lowering long-term financing costs of the combined
company.
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In addition to considering the factors described above, the LHC board of directors also considered the following
factors:
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the fact that the exchange ratio of 0.9150 of a share of LHC common stock for each share of Almost Family common stock is fixed and will not fluctuate based upon changes in the market price of LHC common stock or Almost
Family common stock between the date of the merger agreement and the date of completion of the merger;
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the opinion, dated November 15, 2016, of Jefferies to the LHC board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to LHC of the exchange ratio, which opinion was
based on and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Jefferies, as more fully described under Opinion of LHCs Financial
Advisor;
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the fact that LHC stockholders will hold approximately 58.5% of the common stock of the combined company upon completion of the merger and will, therefore, have the opportunity to participate in the further performance
of the combined company;
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the fact that the combined companys board of directors initially will be comprised of ten directors, including six representatives from LHCs board of directors;
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the fact that directors and executive officers of LHC and Almost Family who have an
in-depth
knowledge of their respective entity and its businesses will have substantial
representation on the board of directors and on the senior management team, respectively, of the combined company;
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the fact that Mr. Myers, the chairman of the board of directors and chief executive officer of LHC, will serve as the chairman of the board of directors and chief executive officer of the combined company and that
Mr. Stelly, LHCs president and chief operating officer, and Mr. Proffitt, LHCs chief financial officer and executive vice president, will both continue to serve in their respective capacities for the combined company following
the completion of the merger;
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that the merger agreement permits LHC to participate in negotiations with and to furnish information to any third party that makes an acquisition proposal that LHC board of directors determines in good faith (after
consultation with outside counsel and a financial advisor) constitutes or is reasonably likely to lead to a superior proposal and determines in good faith (after consultation with outside counsel) that its failure to take such actions would
reasonably be expected to be inconsistent with the LHC board of directors fiduciary duties under applicable law;
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that the LHC board of directors may, under certain circumstances, withdraw, modify or qualify its recommendation that LHC stockholders vote for the approval of the issuance of shares of LHC common stock to the Almost
Family stockholders pursuant to the merger, if failure to take such action would reasonably be expected to be inconsistent with LHC board of directors fiduciary duties under applicable law and after compliance with the other requirements set
forth in the merger agreement (although LHC cannot terminate the merger agreement to accept a superior proposal);
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its belief that the size of the termination fee that might be payable to Almost Family pursuant to the merger agreement (i) was reasonable in light of the overall terms of the merger agreement, as well as identical
to the termination fee by Almost Family to LHC in corresponding circumstances, (ii) was within the range of termination fees in other transactions of this size and nature and (iii) would not be likely to preclude another party from making
a competing proposal;
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its belief that the size of the expense reimbursement that might be payable to Almost Family pursuant to the merger agreement (i) was reasonable in light of the overall terms of the merger agreement, as well as
identical to the expense reimbursement by Almost Family to LHC in corresponding circumstances and (ii) would not likely impact the vote of LHC stockholders on the proposal to approve the issuance of shares of LHC common stock to the Almost
Family stockholders pursuant to the merger; and
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the other terms and conditions of the merger agreement, including the degree of mutuality and symmetry of representations, obligations and rights of the parties under the merger agreement, the conditions to each
partys obligation to complete the merger, the circumstances in which each party is permitted to terminate the merger agreement and the related termination fees or expense reimbursements payable by each party in the event of termination of the
merger agreement under specified circumstances and the likelihood of completing the merger on the anticipated schedule.
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The
LHC board of directors weighed the foregoing against a number of risks and potentially negative factors, including:
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the restrictions on the conduct of LHCs business during the period between execution of the merger agreement and the consummation of the merger, which may prevent LHC from making certain acquisitions or
dispositions or pursuing certain business opportunities during such period;
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the potential effect of the merger on LHCs overall business, including its relationships with customers, joint venture partners, referral sources, payors, competitors, management, other employees and regulators;
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the challenges inherent in combining the businesses, operations and workforces of two businesses of the size,
geographic diversity and complexity of LHC and Almost Family, including the potential for
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(i) unforeseen difficulties in integrating operations and systems, (ii) the possible distraction of management attention for an extended period of time, and (iii) difficulties in
the acculturation of the employees of the two companies;
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the risk of not being able to realize all of the anticipated benefits of the merger, including the synergies, cost savings, growth opportunities or cash flows between LHC and Almost Family, or that such benefits may
take longer than expected to be realized, if at all;
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the risk that the transaction and subsequent integration of the two businesses may preclude or divert attention from other business opportunities;
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the substantial costs to be incurred in connection with the merger, including the expenses and fees for professional services and other transaction costs arising from the merger, and the costs of integrating the
businesses of LHC and Almost Family;
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the risk that governmental entities may oppose or refuse to grant regulatory clearances of the merger or impose conditions on LHC and/or Almost Family prior to approving the merger that may adversely impact the ability
of the combined company to realize the anticipated benefits that are projected to occur in connection with the merger or require the combined company to cease operations or divest assets in certain jurisdictions;
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the risk that, despite the combined efforts of LHC and Almost Family prior to the consummation of the merger, the combined company may neither attract nor retain key management or personnel;
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the risk that the merger may not be completed despite the combined efforts of LHC and Almost Family or that completion may be unduly delayed, even if the requisite approval is obtained from LHCs stockholders and
Almost Familys stockholders;
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the fact that LHC intends to amend or refinance its 2014 Credit Facility and potentially seek additional sources of financing in connection with the merger and the risk that it may not succeed in obtaining such
amendment or refinancing on favorable terms, if at all;
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the fact that LHC is obligated to pay Almost Family a termination fee of $30 million in certain circumstances as summarized under The Merger Agreement Expenses and Termination
Fees; Liability for Breach beginning on page 135, including following a termination of the merger agreement in circumstances where no alternative transaction is available to LHC;
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the fact that LHC is obligated to reimburse up to $5 million of Almost Familys merger related expenses following a termination of the merger agreement in circumstances where LHC stockholders failed to approve
the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger as summarized under The Merger Agreement Expenses and Termination Fees; Liability for Breach beginning on
page 135;
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the fact that under the terms of the merger agreement, in certain circumstances, the Almost Family board of directors can withdraw, modify or qualify its recommendation that the Almost Family stockholders vote for the
approval of the merger agreement, if failure to take such action would reasonably be expected to be inconsistent with the Almost Family directors fiduciary duties under applicable law and after compliance with the other requirements set forth
in the merger agreement (although Almost Family cannot terminate the merger agreement to accept a superior proposal);
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the terms of the merger agreement place limitations on the ability of LHC to solicit, initiate or knowingly encourage or facilitate any inquiries or the making of any proposal or offer by or with a third party with
respect to an alternative acquisition proposal and to furnish
non-public
information to, or participate in negotiations with, a third party interested in pursuing an alternative business combination
transaction, and that LHC cannot terminate the merger agreement to accept a superior proposal;
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the risk that the terms of the merger agreement, although reciprocal, including provisions relating to the
payment of a termination fee and expense reimbursement under specified circumstances, may have the
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effect of discouraging other parties that would otherwise be interested in a transaction with LHC from proposing such a transaction;
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the absence of any appraisal rights for LHC stockholders under Delaware law; and
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the risks of the type and nature described under the heading Risk Factors, and the matters described under the heading Special Note Regarding Forward-Looking Statements.
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In view of the wide variety of factors considered in connection with its evaluation of the merger agreement and the merger and the complexity
of these matters, the LHC board of directors did not find it useful and did not attempt to assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger agreement and the merger
and to recommend that LHC stockholders vote FOR the proposal to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the merger, FOR the proposal to approve the charter amendment and FOR the proposal to
approve any motion to adjourn LHC special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of LHC common stock to the Almost Family stockholders pursuant to the
merger. In addition, although the LHC board of directors did not find it useful and did not attempt to assign any relative or specific weights to the various factors, individual members of the LHC board of directors may have assigned different
weights to different factors.
The LHC board of directors has unanimously (i) determined that the merger agreement, the merger and
the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of LHC and its stockholders and (ii) approved, authorized, adopted and declared advisable the merger agreement, the merger and the
other transactions contemplated by the merger agreement. The LHC board of directors unanimously recommends that LHC stockholders vote FOR the proposal to approve the issuance of shares of LHC common stock to Almost Family stockholders pursuant to
the merger, FOR the proposal to approve the charter amendment and FOR the proposal to approve any motion to adjourn LHC special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the
issuance of shares of LHC common stock to Almost Family stockholders pursuant to the merger.
Almost
Familys Reasons for the Merger; Recommendation of the Almost Family Board of Directors.
In evaluating the merger, Almost
Familys board of directors consulted with Almost Familys management and legal and financial advisors, and in reaching its decision to approve the merger agreement and recommend its adoption by Almost Family stockholders, Almost
Familys board of directors considered a number of factors and a substantial amount of information, including the following:
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its knowledge of Almost Familys business, operations, financial condition, earnings and prospects, as well as its assessment of LHCs business, operations, financial condition, earnings and prospects, taking
into account the results of Almost Familys due diligence review of LHC;
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its belief that the merger will create a nationwide provider of
in-home
healthcare services with a long track record of successfully partnering with hospitals and health systems
led by the most experienced management team steeped in home health;
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that at the time the Almost Family board of directors approved the merger, the transaction was estimated to achieve $25 million in
pre-tax
run-rate
cost synergies, which provides additional capacity to pursue new acquisition opportunities;
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that at the time the Almost Family board of directors approved the merger, the transaction was anticipated to result in a combined company with net revenue of approximately $1.8 billion and adjusted EBITDA of
approximately $145 million, on a pro forma basis for the last twelve months ended September 30, 2017 and without giving any effect to any anticipated synergies or cost savings, and significant free cash flow available to invest in future
growth;
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that Almost Family expects the combined company to have an increased market capitalization and improved access to capital, providing incremental benefits to stockholders;
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the belief that the merger creates the leading
in-home
healthcare company in the United States, with a large, national footprint and diversified lines of service as well as
Centers for Medicare & Medicaid Services (CMS) Star ratings that outpace the industry; and
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the belief that the combined company is well-positioned to lead the industrys transition to value-based reimbursement and highly coordinated care.
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In addition to considering the factors described above, the Almost Family board of directors also considered the following factors:
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the fact that the exchange ratio of 0.9150 of a share of LHC common stock for each share of Almost Family common stock is fixed and will not fluctuate based upon changes in the market price of Almost Family common stock
or LHC common stock between the date of the merger agreement and the date of completion of the merger;
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the fixed exchange ratio represents a premium of 15.6% to the closing price of Almost Family common stock on November 15, 2017 (the last trading day before the public announcement of the merger);
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the opinion, dated November 15, 2017, of Guggenheim Securities to Almost Familys board of directors as to the fairness, from a financial point of view and as of the date of the opinion, of the exchange ratio
to the stockholders of Almost Family (excluding LHC Group and its affiliates), which opinion was based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the
review undertaken as more fully described under the section entitled Opinion of Almost Familys Financial Advisor below;
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the fact that Almost Family stockholders will hold approximately 41.5% of the common stock of the combined company upon completion of the merger and will, therefore, have the opportunity to participate in the further
performance of the combined company;
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the fact that the combined companys board of directors initially will be comprised of ten directors, including four representatives from Almost Familys board of directors;
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the fact that directors and executive officers of Almost Family and LHC who have an
in-depth
knowledge of their respective entity and its businesses will have substantial
representation on the board of directors and on the senior management team, respectively, of the combined company;
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the fact that Mr. Yarmuth, the chairman of the board of directors and chief executive officer of Almost Family, will serve as a special advisor to the combined company and that Mr. Guenthner, Almost
Familys current president and principal financial officer, will continue as president of Almost Family and serve as chief strategy officer of the combined company following the closing;
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that the merger agreement permits Almost Family to participate in negotiations with and to furnish information to any third party that makes an acquisition proposal that the Almost Family board of directors determines
in good faith (after consultation with outside counsel and a financial advisor) constitutes or is reasonably likely to lead to a superior proposal and determines in good faith (after consultation with outside counsel) that its failure to take such
actions would be inconsistent with the duties of the Almost Family board of directors under applicable law;
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that the Almost Family board of directors may, under certain circumstances, withdraw, modify or qualify its recommendation that the Almost Family stockholders vote for the approval of the issuance of shares of Almost
Family common stock to the LHC stockholders pursuant to the merger, if failure to take such action would be inconsistent with the Almost Family directors duties under applicable law and after compliance with the other requirements set forth in
the merger agreement (although Almost Family cannot terminate the merger agreement to accept a superior proposal);
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the limited circumstances under which the LHC board of directors can change its recommendation that the LHC stockholders vote for the approval of the merger agreement, and the fact that LHC will be required to pay
Almost Family a termination fee of $30 million in certain circumstances as summarized under The Merger Agreement Expenses and Termination Fees; Liability for Breach beginning on page 135;
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the fact that the transaction is anticipated to be tax free for United States federal income tax purposes to the Almost Family stockholders;
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the Almost Family board of directors belief that the size of the termination fee that might be payable to LHC pursuant to the merger agreement (i) was reasonable in light of the overall terms of the merger
agreement, as well as identical to the termination fee payable by LHC to Almost Family in corresponding circumstances, (ii) was within the range of termination fees in other transactions of this size and nature and (iii) would not be
likely to preclude another party from making a competing proposal; and
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the other terms and conditions of the merger agreement, including the degree of mutuality and symmetry of representations, obligations and rights of the parties under the merger agreement, the conditions to each
partys obligation to complete the merger, the circumstances in which each party is permitted to terminate the merger agreement and the related termination fees payable by each party in the event of termination of the merger agreement under
specified circumstances and the likelihood of completing the merger on the anticipated schedule.
|
The Almost Family board of
directors weighed the foregoing against a number of risks and countervailing factors, including:
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the fact that the Almost Family stockholders will not receive cash in the transaction even though certain of the Almost Family stockholders may desire liquidity;
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the restrictions on the conduct of Almost Familys business during the period between execution of the merger agreement and the consummation of the merger, which may prevent Almost Family from making certain
acquisitions or dispositions or pursuing certain business opportunities during such period;
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the potential effect of the merger on Almost Familys overall business, including its relationships with customers, suppliers, competitors, management, other employees and regulators;
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the challenges inherent in combining the businesses, operations and workforces of two businesses of the size, geographic diversity and complexity of Almost Family and LHC, including the potential for (i) unforeseen
difficulties in integrating operations and systems, (ii) the possible distraction of management attention for an extended period of time, and (iii) difficulties in the acculturation of the employees of the two companies;
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the risk of not being able to realize all of the anticipated benefits of the merger, including the synergies, cost savings, growth opportunities or cash flows between Almost Family and LHC, or that such benefits may
take longer than expected to be realized, if at all;
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the risk that the transaction and subsequent integration of the two businesses may preclude other business opportunities;
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the substantial costs to be incurred in connection with the merger, including the expenses and fees for professional services and other transaction costs arising from the merger, and the costs of integrating the
businesses of Almost Family and LHC;
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the risk that governmental entities may oppose or refuse to grant regulatory clearances of the merger or impose conditions on Almost Family and/or LHC prior to approving the merger that may adversely impact the ability
of the combined company to realize the anticipated benefits that are projected to occur in connection with the merger;
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75
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the risk that, despite the combined efforts of Almost Family and LHC prior to the consummation of the merger, the combined company may neither attract nor retain key management or personnel;
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the fact that Almost Family is obligated to pay LHC a termination fee of $30 million in certain circumstances as summarized under The Merger Agreement Expenses and Termination
Fees; Liability for Breach beginning on page 135, including following a termination of the merger agreement in circumstances where no alternative transaction is available to Almost Family;
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the fact that under the terms of the merger agreement, in certain circumstances, the LHC board can withdraw, modify or qualify its recommendation that the LHC stockholders vote for the approval of the merger agreement,
if failure to take such action would be inconsistent with the LHC directors duties under applicable law and after compliance with the other requirements set forth in the merger agreement (although LHC cannot terminate the merger agreement to
accept a superior proposal);
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the terms of the merger agreement place limitations on the ability of Almost Family to solicit, initiate or knowingly encourage or facilitate any inquiries or the making of any proposal or offer by or with a third party
with respect to an alternative acquisition proposal and to furnish
non-public
information to, or participate in negotiations with, a third party interested in pursuing an alternative business combination
transaction, and that Almost Family cannot terminate the merger agreement to accept a superior proposal;
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the risk that the terms of the merger agreement, although reciprocal, including provisions relating to the payment of a termination fee under specified circumstances, may have the effect of discouraging other parties
that would otherwise be interested in a transaction with Almost Family from proposing such a transaction;
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the absence of any appraisal rights for Almost Family stockholders under Delaware law; and
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the risks of the type and nature described under the heading Risk Factors, and the matters described under the heading Special Note Regarding Forward-Looking Statements.
|
Almost Familys board of directors also was apprised of certain interests in the merger of Almost Familys directors and executive
officers that may be different from, or in addition to, the interests of Almost Family generally as discussed in Interests of Almost Family Directors and Executive Officers in the Merger.
This discussion of the information and factors considered by Almost Familys board of directors in reaching its conclusions and
recommendation summarizes the material factors considered by Almost Familys board of directors, but is not intended to be exhaustive. In view of the wide variety of factors considered in connection with its evaluation of the merger and the
complexity of these matters, Almost Familys board of directors did not find it practicable, and did not attempt, to quantify, rank or assign any relative or specific weights to the various factors that it considered in reaching its
determination to approve the merger agreement and to recommend that Almost Family stockholders vote in favor of the proposal to adopt the merger agreement.
Almost Familys board of directors conducted an overall review of the factors described above and considered the factors overall to be
favorable to and to support its determination. In considering the factors described above, individual members of Almost Familys board of directors may have given differing weights to different factors.
The Almost Family board of directors has unanimously (i) determined that the merger agreement, the merger and the other transactions
contemplated by the merger agreement are advisable and fair to and in the best interests of Almost Family and its stockholders and (ii) approved, authorized, adopted and declared advisable the merger agreement, the merger and the other
transactions contemplated by the merger agreement. The Almost Family board of directors unanimously recommends that Almost Family stockholders vote FOR the proposal to adopt the merger agreement, FOR the proposal to approve, on a
non-binding
advisory basis, specific compensatory arrangements relating to the merger between Almost
76
Family and its named executive officers and FOR the proposal to approve any motion to adjourn the Almost Family special meeting, if necessary or appropriate, to solicit additional proxies if
there are not sufficient votes to adopt the merger agreement.
Opinion of LHCs Financial Advisor
LHC retained Jefferies as financial advisor in connection with the transaction. With respect to this engagement, LHC requested that
Jefferies evaluate whether the exchange ratio set forth in the merger agreement is fair, from a financial point of view, to LHC. At a meeting of the LHC board of directors held on November 15, 2017, Jefferies rendered an oral opinion, confirmed
by delivery of a written opinion dated the same date, to the LHC board of directors to the effect that, as of that date and based on and subject to the assumptions made, procedures followed, factors considered and limitations and qualifications on
the review undertaken as described in its opinion, the exchange ratio set forth in the merger agreement was fair, from a financial point of view, to LHC.
The full text of Jefferies opinion describes the assumptions made, procedures followed, matters considered and limitations and
qualifications with respect to the review undertaken by Jefferies. This opinion is attached as Annex C and is incorporated herein by reference.
Jefferies opinion was provided for the use and benefit of the LHC board of directors
(in its capacity as such) in its evaluation of the exchange ratio from a financial point of view and did not address any other aspect of the merger or any other matter. The
opinion did not address the relative merits of the merger as compared
to any alternative transaction or opportunity that might be available to LHC, nor did it address the underlying business decision by LHC to engage in the merger. Jefferies opinion does not constitute a recommendation as to how any stockholder
should vote or act in connection with any matter related to the merger.
The following summary is qualified in its entirety by reference to the full text of Jefferies opinion.
In arriving at its opinion, Jefferies, among other things:
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reviewed a draft dated November 14, 2017 of the merger agreement;
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reviewed certain publicly available financial and other information about LHC and Almost Family;
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reviewed certain information furnished to it by LHCs management, including financial forecasts, relating to the business, operations and prospects of LHC;
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reviewed certain information furnished to it by Almost Familys management, including financial forecasts, relating to the business, operations and prospects of Almost Family;
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held discussions with members of senior management of LHC concerning the matters described in the second, third and fourth bullets immediately above;
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held discussions with members of senior management of Almost Family concerning the matters described in the second, third and fourth bullets immediately above;
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reviewed the share trading price history and valuation multiples for Almost Family common stock and LHC common stock and compared them with those of certain publicly traded companies that Jefferies deemed relevant;
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compared the proposed financial terms of the merger with the financial terms of certain other transactions that Jefferies deemed relevant;
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considered the pro forma impact of the merger on LHC and Almost Family; and
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conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.
|
In its review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to
independently investigate or verify, the accuracy and completeness of all financial
77
and other information that was supplied or otherwise made available by LHC and Almost Family or that was publicly available to Jefferies (including, without limitation, the information described
above) or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the respective managements of LHC and Almost Family that they were not aware of any facts or circumstances that would make such information inaccurate or
misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, LHC or Almost Family and
Jefferies was not furnished with, and assumed no responsibility to obtain, any such evaluations or appraisals.
With respect to the
financial forecasts provided to and examined by Jefferies, Jefferies noted that projecting future results of any company is inherently subject to uncertainty. LHC and Almost Family informed Jefferies, however, and Jefferies assumed, that the
financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of LHC and Almost Family as to the future financial performance of LHC and Almost Family,
respectively. Jefferies expressed no opinion as to the respective financial forecasts of LHC or Almost Family or the assumptions on which they were made.
Jefferies opinion was based on economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of
the date of Jefferies opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies becomes aware after the date of its opinion.
Jefferies made no independent investigation of any legal or accounting matters affecting LHC or Almost Family, and assumed the correctness in
all respects material to its analysis of all legal and accounting advice given to LHC and its board of directors, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and the transactions
contemplated by, the merger agreement to LHC and its stockholders. In addition, in preparing its opinion, Jefferies did not take into account any tax consequences of the merger to LHC or its stockholders. Jefferies also assumed, with LHCs
consent, that the merger will qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, Jefferies also assumed that the final form of the merger
agreement would be substantially similar to the last draft reviewed by Jefferies. Jefferies also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation,
restriction or condition would be imposed that would have an adverse effect on LHC, Almost Family or the contemplated benefits of the merger.
Jefferies opinion was for the information of LHC board of directors in its consideration of the merger, and Jefferies opinion did
not address the relative merits of the transactions contemplated by the merger agreement as compared to any alternative transaction or opportunity that might be available to LHC, nor does it address the underlying business decision by LHC to engage
in the merger or the terms of the merger agreement or the documents referred to therein. Jefferies opinion does not constitute a recommendation as to whether or not any holder of shares of LHC common stock should vote or act in connection with
any matter related thereto. In addition, Jefferies, at the direction of the LHC board of directors, did not address the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of LHC or
Almost Family, relative to the exchange ratio. Jefferies expressed no opinion as to the price at which shares of LHC common stock will be when issued pursuant to the merger or the prices at which LHC common stock or Almost Family common stock will
trade at any time. Furthermore, Jefferies did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable or to be received by any officers, directors or employees of any parties to
the merger, or any class of such persons, in connection with the merger relative to the exchange ratio. The issuance of Jefferies opinion was authorized by the fairness committee of Jefferies.
In connection with rendering its opinion to the LHC board of directors, Jefferies performed a variety of financial and comparative analyses,
which are summarized below. The following summary is not a complete
78
description of all analyses performed and factors considered by Jefferies in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected public companies analyses summarized below, no company used as a comparison was identical or directly comparable to LHC or Almost
Family. These analyses necessarily involved complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies or transactions
concerned.
Jefferies believes that its analyses and the summary below must be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying
Jefferies analyses and opinion. Jefferies did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all
analyses undertaken by it and assessed as a whole.
The estimates of the future performance of LHC and Almost Family underlying
Jefferies analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, Jefferies considered industry performance, general business and
economic conditions and other matters, many of which are beyond the control of LHC and Almost Family. Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at which companies or securities
actually may be sold or acquired. Accordingly, the estimates used in, and the range of the valuations resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as
Jefferies view of the actual value of LHC, Almost Family or the shares of common stock of LHC or Almost Family.
The exchange ratio
was determined through
arms-length
negotiation between LHC and Almost Family, and the decision by LHC to enter into the merger agreement was solely that of the LHC board of directors. Jefferies
opinion and financial analyses was only one of many factors considered by the LHC board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the LHC board of directors or LHC management with respect
to the merger or the exchange ratio.
The following is a brief summary of the material financial analyses provided to the LHC board of
directors and performed by Jefferies in connection with its opinion.
The financial analyses summarized below include information presented in tabular format. In order to fully understand Jefferies financial analyses, the tables must be
read together with the text of
each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative
description of the financial
analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies financial analyses.
The management projections for LHC (LHC Management Projections)
and Almost Family as provided to (which Almost Family management projections were adjusted by LHC management as described under Additional Information below) and approved for use by Jefferies by LHC management (Almost Family
Management Projections, and together with the LHC Management Projections, the Management Projections) for the calendar years ending December 31, 2017 through December 31, 2022 are described in the section entitled
Certain LHC Unaudited Prospective Financial Information and
Certain Almost Family Unaudited Prospective Financial Information
.
Financial Analyses
Selected Public
Companies Analysis.
In performing a selected public companies analysis of LHC and Almost Family, Jefferies reviewed publicly available financial and market information for both companies and the selected public
companies listed in the table below (which we refer to in this section as the Selected Publicly Traded Companies), which Jefferies in its professional judgment considered generally relevant for comparative purposes as publicly traded
companies in the home health and hospice industry.
79
LHC Group, Inc. Peers
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Addus HomeCare Corporation
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Almost Family, Inc. Peers
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Addus HomeCare Corporation
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Jefferies reviewed total enterprise values (or TEV) for LHC,
Almost Family and each other Selected Publicly Traded Company as a multiple of (1) estimated adjusted EBITDA less
non-controlling
interest (or NCI) and (2) estimated adjusted EBITDA less
NCI plus stock-based compensation (or SBC), in each case for calendar year 2017 and calendar year 2018. Total enterprise values, or TEV, were calculated for purposes of this analysis as equity value (based on the per share closing price
of each Selected Publicly Traded Company on November 14, 2017, the last trading day before the date Jefferies rendered its opinion, multiplied by the fully diluted number of such companys outstanding equity securities based on information
available as of such date calculated using the treasury stock method, less debt and
non-controlling
interest plus cash (in the case of debt,
non-controlling
interest and
cash, as set forth on the most recent publicly available balance sheet of such company, and in the case of
non-controlling
interest, where applicable). Except as otherwise indicated below, financial data of
LHC were based on LHC Management Projections and of Almost Family were based on Almost Family Management Projections. Financial data of the Selected Publicly Traded Companies were based on information from publicly available historical data
and consensus Wall Street analysts estimates (or Wall Street Estimates) calculated as the arithmetic mean of estimates contained in published Wall Street research reports for those companies with projected estimates for the
applicable metric (or with projected estimates that could be derived from information included in such reports). The multiples observed for LHC, Almost Family and the other Selected Publicly Traded Companies in relation to estimated Adjusted
EBITDA-NCI
and estimated Adjusted
EBITDA-NCI+SBC,
in each case as defined in the section entitled Certain LHC Unaudited Prospective Financial
Information, for calendar year 2017 and calendar year 2018 were:
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TEV /
(Adjusted EBITDA - NCI)
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TEV /
(Adjusted EBITDA - NCI + SBC)
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2017E
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2018E
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2017E
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2018E
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Selected Publicly Traded Companies
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Addus HomeCare Corporation
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11.3x
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10.2x
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10.6x
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9.3x
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Amedisys, Inc.
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14.0x
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12.0x
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12.6x
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11.0x
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Chemed Corporation
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15.8x
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14.6x
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15.2x
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14.6x
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Almost Family(1)
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15.2x
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12.3x
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14.2x
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11.8x
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LHC Group(1)
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16.2x
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13.9x
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15.1x
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13.4x
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(1)
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Based on Wall Street Estimates.
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Based on its review of the Selected Publicly Traded Companies
and its experience and professional judgment, Jefferies then applied (i) a reference range of TEV/Adjusted
EBITDA-NCI
multiples of 14.0x to 16.0x and 12.5x to 14.0x to the estimated Adjusted
EBITDA-NCI
for LHC for calendar years 2017 and 2018, respectively, and (ii) a reference range of TEV/ Adjusted
EBITDA-NCI
multiples of 13.5x to 15.5x and 12.0x to
80
13.5x to the estimated Adjusted
EBITDA-NCI
for Almost Family for calendar years 2017 and 2018, respectively, (iii) a reference range of TEV/Adjusted
EBITDA-NCI+SBC
multiples of 13.5x to 15.0x and 11.5x to 13.0x to the estimated Adjusted
EBITDA-NCI+SBC
for LHC for calendar years 2017 and 2018, respectively, and (iv) a
reference range of TEV/Adjusted
EBITDA-NCI+SBC
multiples of 12.5x to 14.0x and 11.0x to 12.5x to the estimated Adjusted
EBITDA-NCI+SBC
for Almost Family for calendar
years 2017 and 2018, respectively. In each case, estimated Adjusted
EBITDA-NCI
and estimated Adjusted
EBITDA-NCI+SBC
was based on the Management Projections. This
analysis indicated an implied equity value per share reference range for LHC of approximately (1) $56.06 to $65.42 and $65.82 to $74.86, using the 2017 and 2018 TEV/Adjusted
EBITDA-NCI
multiples, respectively,
and (2) $58.12 to $65.63 and $63.66 to $73.20, using the 2017 and 2018 TEV/Adjusted
EBITDA-NCI+SBC
multiples, respectively. This analysis indicated an implied equity value per share reference range for Almost
Family of approximately (1) $51.92 to $61.02 and $59.90 to $68.57, using the 2017 and 2018 TEV/Adjusted
EBITDA-NCI
multiples, respectively, and (2) $50.00 to $57.14 and $56.49 to $65.49, using the 2017 and
2018 TEV/Adjusted
EBITDA-NCI+SBC
multiples, respectively.
Jefferies calculated an implied
exchange ratio reference range by dividing the low end of the implied per share equity value reference range for Almost Family by the high end of the implied per share equity value reference range for LHC indicated by the Selected Publicly Traded
Companies analyses and by dividing the high end of the implied per share equity value reference range for Almost Family by the low end of the implied per share equity value reference range for LHC indicated by the Selected Publicly Traded Companies
analyses. This analysis indicated the following implied exchange ratio reference ranges, as compared to the exchange ratio of 0.9150x in the merger:
Implied Exchange Ratio Reference Ranges
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Adjusted
EBITDA-NCI
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Adjusted EBITDA NCI+SBC
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Merger Exchange Ratio
|
2017E
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2018E
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2017E
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2018E
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0.7937x 1.0886x
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0.8001x 1.0418x
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0.7618x 0.9831x
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0.7717x 1.0288x
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0.9150x
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Jefferies calculated the price to earnings ratio for these Selected Publicly Traded Companies, LHC and Almost
Family based on projected adjusted earnings per share for 2017 and 2018, using Wall Street Estimates in each case. The following table presents the results of this analysis:
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Addus
Homecare
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Amedisys
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Chemed
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LHC
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Almost
Family
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CY2017E P/E Ratio
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20.7x
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25.8x
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27.7x
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28.6x
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25.0x
|
|
CY2018E P/E Ratio
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18.8x
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22.6x
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26.1x
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25.5x
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19.8x
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Based on its review of the Selected Publicly Traded Companies and its experience and professional judgment,
Jefferies then applied (i) a reference range of Price/EPS multiples of 25.0x to 27.5x and 22.0x to 25.0x to the estimated adjusted earnings per share for LHC for calendar years 2017 and 2018, respectively, and (ii) a reference range of
Price/EPS multiples of 24.5x to 27.0x and 20.5x to 23.5x to the estimated adjusted earnings per share for Almost Family for calendar years 2017 and 2018, respectively. This analysis indicated an implied equity value per share reference range for LHC
of approximately $59.72 to $65.69 and $66.03 to $75.04, using the 2017 and 2018 adjusted earnings per share multiples, respectively, and for Almost Family of approximately $54.95 to $60.56 and $62.85 to $72.04, using the 2017 and 2018 adjusted
earnings per share, multiples, respectively.
Jefferies then calculated an implied exchange ratio reference range by dividing the low end
of the implied per share equity value reference range for Almost Family by the high end of the implied per share equity value reference range for LHC indicated by the Selected Publicly Traded Companies analyses and by dividing the high end of the
implied per share equity value reference range for Almost Family by the low end of the implied per share equity value reference range for LHC indicated by the Selected Publicly Traded Companies analyses. This
81
analysis indicated the following implied exchange ratio reference ranges, as compared to the exchange ratio of 0.9150x in the merger:
Implied Exchange Ratio Reference Ranges
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|
2017E
|
|
2018E
|
|
Merger Exchange Ratio
|
0.8366x 1.0141x
|
|
0.8375x 1.0910x
|
|
0.9150x
|
Discounted Cash Flow Analysis
Using the Management Projections, Jefferies performed a discounted cash flow analysis on each of LHC and Almost Family on a stand-alone basis
without taking into account expected cost synergies.
Using the LHC Management Projections, Jefferies performed a discounted cash flow
analysis on LHC. Using discount rates ranging from 10.50% to 11.50% reflecting estimates of LHCs weighted average cost of capital, Jefferies discounted to present value, as of December 31, 2017, (i) estimates of the projected free
cash flows of LHC through 2022 based on information contained in the LHC Management Projections and (ii) a range of terminal year values for LHC derived by applying perpetuity growth rates ranging from 4.5% to 5.5% to a terminal year estimate
of LHCs free cash flow in 2022 reflected in the LHC Management Projections. Unlevered free cash flow was calculated by using tax effecting LHCs forecasted EBIT figure at LHCs applicable tax rate, adding back depreciation and
amortization and stock based compensation expense, deducting capital expenditures and changes in net working capital, in the case of each of the foregoing, as included in the LHC Management Projections. Jefferies derived ranges of implied values for
LHC by adding the ranges of present values derived above. Jefferies then subtracted from the range of implied values it derived amounts for LHCs indebtedness and
non-controlling
interest and added
amounts for LHCs cash as of September 30, 2017, in each case as per LHC management, to derive a range of implied equity values for LHC. Jefferies then divided the range of implied equity values it derived by the number of fully diluted
shares of LHC as of November 14, 2017, as provided by the management of LHC, to derive a range of implied present values per share. This analysis also assumed a tax rate of 41.4% for calendar years 2018 through 2022, as provided by the
management of LHC.
Using the Almost Family Management Projections, Jefferies performed a discounted cash flow analysis on Almost Family.
Using discount rates ranging from 11.00% to 12.00% reflecting estimates of Almost Familys weighted average cost of capital, Jefferies discounted to present value, as of December 31, 2017, (i) estimates of the projected free cash
flows of Almost Family through 2022 based on information contained in the Almost Family Management Projections and (ii) a range of terminal year values for Almost Family derived by applying perpetuity growth rates ranging from 4.5% to 5.5% to a
terminal year estimate of Almost Familys free cash flow in 2022 reflected in the Almost Family Management Projections. Unlevered free cash flow was calculated by using tax effecting Almost Familys forecasted EBIT figure at Almost
Familys applicable tax rate, adding back depreciation and amortization and stock based compensation expense, deducting capital expenditures and changes in net working capital, in the case of each of the foregoing, as included in the Almost
Family Management Projections. Jefferies derived ranges of implied values for Almost Family by adding the ranges of present values derived above. Jefferies then subtracted from the range of implied values it derived amounts for Almost Familys
indebtedness and
non-controlling
interest and added back amounts for cash as of September 30, 2017, in each case as per Almost Family management to derive a range of implied equity values for Almost
Family. Jefferies then divided the range of implied equity values it derived by the number of fully diluted shares of Almost Family as of November 14, 2017, as provided by the management of Almost Family to LHC and which LHC instructed
Jefferies to rely on, to derive a range of implied present values per share. This analysis also assumed a tax rate of 39.5% for calendar years 2018 through 2022 as provided by Almost Family management and approved by LHC for use by Jefferies.
This analysis indicated an implied equity value per share reference range for LHC of approximately $48.86 to $70.04 and for Almost Family of
approximately $37.73 to $52.87. Jefferies then calculated an implied
82
exchange ratio reference range by dividing the low end of the implied per share equity value reference range for Almost Family by the high end of the implied per share equity value reference
range for LHC indicated by the discounted cash flow analysis and by dividing the high end of the implied per share equity value reference range for Almost Family by the low end of the implied per share equity value reference range for LHC indicated
by the discounted cash flow analysis. This analysis indicated an implied exchange ratio reference range of 0.5387x to 1.0822x, as compared to the exchange ratio of 0.9150x in the merger.
Additional Information
Jefferies
observed certain additional information that was not considered part of Jefferies financial analysis with respect to its opinion but were noted for informational purposes, including:
Relative Contribution Analysis
Jefferies analyzed the respective contributions of LHC and Almost Family to the estimated revenue, Adjusted
EBITDA-NCI,
Adjusted
EBITDA-NCI+SBC
and Adjusted Net Income of the combined company, based on LHC Management Projections and Almost Family Management Projections, as of
the end of calendar years 2017 and 2018. This analysis indicated the relative contributions of LHC and Almost Family and the implied exchange ratios of shares of LHC common stock for each share of Almost Family common stock based on the metrics set
forth in the following table, and an implied exchange ratio reference range of 0.8679x to 1.0089x shares of LHC common stock for each share of Almost Family common stock based on the contribution analysis for calendar years 2017 and 2018 as compared
to the exchange ratio of 0.9150x in the merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Projections:
LHC
($ in millions)
|
|
|
Management
Projections:
Almost
Family (1)
($ millions)
|
|
|
LHC
Contribution
|
|
|
Almost
Family
Contribution
|
|
|
Implied
Exchange
Ratio
|
|
Net Revenue
|
|
|
2017E
|
|
|
$
|
1,064.8
|
|
|
$
|
803.9
|
|
|
|
57.0
|
%
|
|
|
43.0
|
%
|
|
|
0.9537x
|
|
|
|
|
2018E
|
|
|
$
|
1,222.1
|
|
|
$
|
850.2
|
|
|
|
59.0
|
%
|
|
|
41.0
|
%
|
|
|
0.8679x
|
|
Adjusted
EBITDA-NCI
|
|
|
2017E
|
|
|
$
|
85.6
|
|
|
$
|
65.4
|
|
|
|
56.7
|
%
|
|
|
43.3
|
%
|
|
|
0.9680x
|
|
|
|
|
2018E
|
|
|
$
|
110.1
|
|
|
$
|
83.2
|
|
|
|
57.0
|
%
|
|
|
43.0
|
%
|
|
|
0.9544x
|
|
Adjusted
EBITDA-NCI+SBC
|
|
|
2017E
|
|
|
$
|
91.5
|
|
|
$
|
68.5
|
|
|
|
57.2
|
%
|
|
|
42.8
|
%
|
|
|
0.9437x
|
|
|
|
|
2018E
|
|
|
$
|
116.2
|
|
|
$
|
86.3
|
|
|
|
57.4
|
%
|
|
|
42.6
|
%
|
|
|
0.9354x
|
|
Adjusted Net Income
|
|
|
2017E
|
|
|
$
|
42.9
|
|
|
$
|
31.3
|
|
|
|
57.8
|
%
|
|
|
42.2
|
%
|
|
|
0.9403x
|
|
|
|
|
2018E
|
|
|
$
|
54.6
|
|
|
$
|
42.8
|
|
|
|
56.1
|
%
|
|
|
43.9
|
%
|
|
|
1.0089x
|
|
(1)
|
Per LHC managements adjustments of Almost Family management projections.
|
83
Historical Exchange Ratio Analysis
Jefferies reviewed the stock price performance of LHC and Almost Family during various periods within the five-year period ending on
November 14, 2017, the last full trading day prior to the rendering of Jefferies opinion dated November 15, 2017. Jefferies then calculated the daily historical exchange ratios during the five-year period ending on November 14,
2017 implied by dividing the closing price of Almost Family common stock for the relevant date by the closing price of LHC common stock for such date. Jefferies then calculated the average of the resulting exchange ratios, and determined the highest
and lowest exchange ratios, across certain periods ending on November 14, 2017. Jefferies compared the exchange ratio of 0.9150x provided for in the merger agreement with the historical exchange ratios for such dates and periods. The following
table lists the implied exchange ratios for these dates and periods:
|
|
|
|
|
|
|
Implied Exchange Ratio
|
|
|
|
Period Ending
November
14, 2017
|
|
Closing Price on November 14, 2017
|
|
|
0.7662x
|
|
Last One Year
|
|
|
|
|
High
|
|
|
1.0391x
|
|
Low
|
|
|
0.6186x
|
|
Average
|
|
|
0.8829x
|
|
Last Two Years Average
|
|
|
0.9376x
|
|
Last Three Years Average
|
|
|
0.9786x
|
|
Miscellaneous
Jefferies was engaged by the LHC board of directors to act as financial advisor to LHC in connection with the merger, and Jefferies will
receive an aggregate fee for its services of approximately $7.0 million, $1.0 million of which was payable upon delivery of Jefferies opinion and approximately $6.0 million of which is payable contingent upon consummation of the
merger. LHC also agreed to reimburse Jefferies for its reasonable expenses and to indemnify Jefferies against liabilities arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement.
Jefferies has not provided financial advisory or financing services to LHC, Almost Family or their respective affiliates in the two year
period prior to the date of its opinion. Jefferies may seek to, in the future, provide financial advisory and financing services to LHC, Almost Family or entities that are affiliated with LHC or Almost Family and their respective affiliates, for
which Jefferies would expect to receive compensation. In the ordinary course of business, Jefferies, and its affiliates may trade or hold securities of LHC or Almost Family and/or their respective affiliates for Jefferies and Jefferies
own account and, accordingly, may at any time hold long or short positions in those securities.
Jefferies was selected to act as
LHCs financial advisor in connection with the merger because Jefferies is an internationally recognized investment banking firm with substantial experience in merger and acquisition transactions and its familiarity with LHC and its business.
Opinion of Almost Familys Financial Advisor
Almost Family retained Guggenheim Securities as its financial advisor in connection with Almost Familys possible merger with LHC. In
selecting Guggenheim Securities as its financial advisor, Almost Family considered that, among other things, Guggenheim Securities is an internationally recognized investment banking, financial advisory and securities firm whose senior professionals
have substantial experience advising companies in, among other industries, the healthcare services industry. Guggenheim Securities, as part of its investment banking, financial advisory and capital markets businesses, is regularly engaged in the
valuation and financial assessment of businesses and securities in connection with mergers and acquisitions, recapitalizations, spin-offs/
84
split-offs, restructurings, securities offerings in both the private and public capital markets and valuations for corporate and other purposes.
At the November 15, 2017 meeting of Almost Familys board of directors, Guggenheim Securities rendered an oral opinion, which was
confirmed by delivery of a written opinion, to Almost Familys board of directors to the effect that, as of November 15, 2017 and based on and subject to the matters considered, the procedures followed, the assumptions made and various
limitations of and qualifications to the review undertaken, the exchange ratio in connection with the merger was fair, from a financial point of view, to the stockholders of Almost Family (excluding LHC and its affiliates).
This description of Guggenheim Securities opinion is qualified in its entirety by the full text of the written opinion, which is
attached as Annex D to this joint proxy statement/prospectus and which you should read carefully and in its entirety. Guggenheim Securities written opinion sets forth the matters considered, the procedures followed, the assumptions made and
various limitations of and qualifications to the review undertaken by Guggenheim Securities. Guggenheim Securities written opinion, which was authorized for issuance by the fairness opinion and valuation committee of Guggenheim Securities, is
necessarily based on economic, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion. Guggenheim Securities has no responsibility for updating or revising its opinion based
on facts, circumstances or events occurring after the date of the rendering of the opinion.
In reading the discussion of Guggenheim
Securities opinion set forth below, you should be aware that such opinion (and, as applicable, any materials provided in connection therewith):
|
|
|
was provided to Almost Familys board of directors (in its capacity as such) for its information and assistance in connection with its evaluation of the exchange ratio;
|
|
|
|
did not constitute a recommendation to Almost Familys board of directors with respect to the merger;
|
|
|
|
does not constitute advice or a recommendation to any holder of Almost Family or LHC common stock as to how to vote or act in connection with the merger or otherwise;
|
|
|
|
did not address Almost Familys underlying business or financial decision to pursue the merger, the relative merits of the merger as compared to any alternative business or financial strategies that might exist for
Almost Family or the effects of any other transaction in which Almost Family might engage;
|
|
|
|
addressed only the fairness, from a financial point of view and as of the date of such opinion, of the exchange ratio to the stockholders of Almost Family (excluding LHC and its affiliates) to the extent expressly
specified in such opinion;
|
|
|
|
expressed no view or opinion as to (i) any other term, aspect or implication of (a) the merger (including, without limitation, the form or structure of the merger) or the merger agreement or (b) any other
agreement, transaction document or instrument contemplated by the merger agreement or to be entered into or amended in connection with the merger or (ii) the fairness, financial or otherwise, of the merger to, or of any consideration to be paid
to or received by, the holders of any class of securities (other than as expressly specified herein), creditors or other constituencies of Almost Family or LHC; and
|
|
|
|
expressed no view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Almost Familys or LHCs directors, officers or
employees, or any class of such persons, in connection with the merger relative to the exchange ratio or otherwise.
|
In the
course of performing its reviews and analyses for purposes of rendering its opinion, Guggenheim Securities:
|
|
|
reviewed an executed copy of the merger agreement dated as of November 15, 2017;
|
85
|
|
|
reviewed certain publicly available business and financial information regarding each of Almost Family and LHC;
|
|
|
|
reviewed certain
non-public
business and financial information regarding Almost Familys business and prospects (including certain financial projections for the years ending
December 31, 2017 through December 31, 2022), all as prepared and provided to Guggenheim Securities by Almost Familys senior management;
|
|
|
|
reviewed certain
non-public
business and financial information regarding LHCs business and prospects (including certain financial projections for the years ending
December 31, 2017 through December 31, 2022), all as prepared and provided to Guggenheim Securities by LHCs senior management;
|
|
|
|
reviewed certain estimated cost savings and other combination benefits and estimated costs to achieve the same
(collectively, synergy estimates or synergies) expected to result from
the merger, as jointly prepared and provided to Guggenheim Securities by Almost Familys senior management and LHCs senior management;
|
|
|
|
discussed with Almost Familys senior management their strategic and financial rationale for the merger as well as their views of Almost Familys and LHCs respective businesses, operations, historical
and projected financial results and future prospects;
|
|
|
|
discussed with LHCs senior management their views of LHCs business, operations, historical and projected financial results and future prospects;
|
|
|
|
reviewed the historical prices, trading multiples and trading activity of the common shares of Almost Family and LHC;
|
|
|
|
compared the financial performance of Almost Family and LHC and the trading multiples and trading activity of the common shares of Almost Family and LHC with corresponding data for certain other publicly traded
companies that Guggenheim Securities deemed relevant in evaluating Almost Family and LHC;
|
|
|
|
reviewed the valuation and financial metrics of certain mergers and acquisitions that Guggenheim Securities deemed relevant in evaluating the merger;
|
|
|
|
performed discounted cash flow analyses based on the financial projections for Almost Family and LHC and the synergy estimates, in each case as furnished to Guggenheim Securities by Almost Family and LHC (as the case
may be);
|
|
|
|
reviewed the
pro forma
financial results, financial condition and capitalization of LHC giving effect to the merger; and
|
|
|
|
conducted such other studies, analyses, inquiries and investigations as Guggenheim Securities deemed appropriate.
|
With respect to the information used in arriving at its opinion, Guggenheim Securities noted that:
|
|
|
Guggenheim Securities relied upon and assumed the accuracy, completeness and reasonableness of all industry, business, financial, legal, regulatory, tax, accounting, actuarial and other information (including, without
limitation, any financial projections, synergy estimates, other estimates and other forward-looking information) furnished by or discussed with Almost Family or LHC or obtained from public sources, data suppliers and other third parties.
|
|
|
|
Guggenheim Securities (i) did not assume any responsibility, obligation or liability for the accuracy,
completeness, reasonableness, achievability or independent verification of, and Guggenheim Securities did not independently verify, any such information (including, without limitation, any financial projections, synergy estimates, other estimates
and other forward-looking information), (ii) expressed
|
86
|
no view, opinion, representation, guaranty or warranty (in each case, express or implied) regarding the reasonableness or achievability of any financial projections, synergy estimates, other
estimates and other forward-looking information or the assumptions upon which they are based and (iii) relied upon the assurances of Almost Familys senior management and LHCs senior management (as the case may be) that they were
unaware of any facts or circumstances that would make such information (including, without limitation, any financial projections, synergy estimates, other estimates and other forward-looking information) incomplete, inaccurate or misleading.
|
|
|
|
Specifically, with respect to any (i) financial projections, synergy estimates, other estimates and other forward-looking information furnished by or discussed with Almost Family or LHC, (a) Guggenheim
Securities was advised by Almost Familys senior management and LHCs senior management (as the case may be), and Guggenheim Securities assumed, that such financial projections, synergy estimates, other estimates and other forward-looking
information utilized in its analyses had been reasonably prepared on bases reflecting the best then-currently available estimates and judgments of Almost Familys senior management and LHCs senior management (as the case may be) as to the
expected future performance of Almost Family and LHC (as the case may be) and the expected amounts and realization of such synergies (and Guggenheim Securities assumed that such synergies will be realized in the amounts and at the times projected)
and (b) Guggenheim Securities assumed that such financial projections, synergy estimates, other estimates and other forward-looking information had been reviewed by Almost Familys board of directors with the understanding that such
information would be used and relied upon by Guggenheim Securities in connection with rendering its opinion and (ii) financial projections, other estimates and/or other forward-looking information obtained by Guggenheim Securities from public
sources, data suppliers and other third parties, Guggenheim Securities assumed that such information was reasonable and reliable.
|
Guggenheim Securities also noted certain other considerations with respect to its engagement and the rendering of its opinion:
|
|
|
During the course of Guggenheim Securities engagement, it was not asked by Almost Familys board of directors to, and it did not, solicit indications of interest from any third parties regarding a potential
transaction with Almost Family.
|
|
|
|
In arriving at its opinion, Guggenheim Securities did not perform or obtain any independent appraisal of the assets or liabilities (including any contingent, derivative or
off-balance
sheet assets and liabilities) of Almost Family, LHC or any other entity or the solvency or fair value of Almost Family, LHC or any other entity, nor was Guggenheim Securities furnished with any
such appraisals.
|
|
|
|
Guggenheim Securities professionals are not legal, regulatory, tax, consulting, accounting, appraisal or actuarial experts and nothing in Guggenheim Securities opinion should be construed as constituting
advice with respect to such matters; accordingly, Guggenheim Securities relied on the assessments of Almost Family, LHC and their respective other advisors with respect to such matters. Almost Familys senior management and LHCs senior
management advised Guggenheim Securities that all
tax-affected
financial projections, synergy estimates, other estimates and other forward-looking information reflect the current US federal corporate income
tax regime pursuant to the Internal Revenue Code of 1986, as amended; at the direction of Almost Familys board of directors and senior management, Guggenheim Securities did not consider or analyze the impacts of any potential or proposed
reform thereof in connection with its opinion and analyses. Guggenheim Securities assumed that the merger will qualify, for US federal income tax purposes, as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended. Guggenheim Securities did not express any view or render any opinion regarding the tax consequences of the merger to Almost Family, LHC or their respective security holders.
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87
|
|
|
Guggenheim Securities further assumed that:
|
|
|
|
In all respects meaningful to its analyses, (i) Almost Family, LHC and Merger Sub will comply with all terms of the merger agreement and (ii) the representations and warranties of Almost Family, LHC and Merger
Sub contained in the merger agreement were true and correct and all conditions to the obligations of each party to the merger agreement to consummate the merger would be satisfied without any waiver, amendment or modification thereof; and
|
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|
|
The merger will be consummated in a timely manner in accordance with the terms of the merger agreement and in compliance with all applicable laws, documents and other requirements, without any delays, limitations,
restrictions, conditions, divestiture or other requirements, waivers, amendments or modifications (regulatory,
tax-related
or otherwise) that would have an effect on Almost Family, LHC, or the merger
(including its contemplated benefits) in any way meaningful to Guggenheim Securities analyses or opinion.
|
|
|
|
Guggenheim Securities did not express any view or opinion as to the price or range of prices at which the shares of common stock and other securities of Almost Family or LHC may trade or otherwise be transferable at any
time, including subsequent to the announcement or consummation of the merger.
|
Summary of Financial Analyses
Overview of Financial Analyses
This
Summary of Financial Analyses presents a summary of the principal financial analyses performed by Guggenheim Securities and presented to Almost Familys board of directors in connection with Guggenheim Securities rendering of
its opinion. Such presentation to Almost Familys board of directors was supplemented by Guggenheim Securities oral discussion, the nature and substance of which may not be fully described herein.
Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully
such financial analyses, the summary data and tables must be read together with the full text of the summary. If read alone, the summary data and tables could create a misleading or incomplete view of Guggenheim Securities financial analyses.
The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate
and relevant financial analyses and the application of those methods to the particular circumstances involved. A fairness opinion therefore is not readily susceptible to partial analysis or summary description, and taking portions of the financial
analyses set forth below, without considering such analyses as a whole, would in Guggenheim Securities view create an incomplete and misleading picture of the processes underlying the financial analyses considered in rendering Guggenheim
Securities opinion.
In arriving at its opinion, Guggenheim Securities:
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|
|
based its financial analyses on various assumptions, including assumptions concerning general business, economic and capital markets conditions and industry-specific and company-specific factors, all of which are beyond
the control of Almost Family, LHC and Guggenheim Securities;
|
|
|
|
did not form a view or opinion as to whether any individual analysis or factor, whether positive or negative, considered in isolation, supported or failed to support its opinion;
|
|
|
|
considered the results of all of its financial analyses and did not attribute any particular weight to any one analysis or factor; and
|
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|
|
ultimately arrived at its opinion based on the results of all of its financial analyses assessed as a whole and believes that the totality of the factors considered and the various financial analyses performed by
Guggenheim Securities in connection with its opinion operated collectively to support its determination as to the fairness, from a financial point of view and as of the date of such opinion, of the exchange ratio pursuant to the merger to the extent
expressly specified in such opinion.
|
88
With respect to the financial analyses performed by Guggenheim Securities in connection with
rendering its opinion:
|
|
|
Such financial analyses, particularly those based on estimates and projections, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested
by these analyses.
|
|
|
|
None of the selected publicly traded companies used in the selected publicly traded companies analysis described below is identical or directly comparable to Almost Family or LHC; however, such companies were selected
by Guggenheim Securities, among other reasons, because they represented publicly traded companies which may be considered broadly similar, for purposes of Guggenheim Securities financial analyses, to Almost Family and LHC based on Guggenheim
Securities familiarity with the healthcare services industry in the United States.
|
|
|
|
In any event, selected publicly traded companies analysis is not mathematical; rather, such analysis involves complex considerations and judgments concerning the differences in business, financial, operating and capital
markets-related characteristics and other factors regarding the selected publicly traded companies to which Almost Family and LHC were compared.
|
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|
|
Such financial analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future.
|
Certain Definitions
Throughout this
Summary of Financial Analyses
,
the following financial terms are used in connection with Guggenheim Securities various financial analyses:
|
|
|
Adj. EPS: means the relevant companys earnings per share, adjusted for amortization of intangible assets and deferred financing fees.
|
|
|
|
Adj. EPS multiple: represents the relevant companys stock price divided by its historical or projected Adj. EPS.
|
|
|
|
CapEx: means capital expenditures.
|
|
|
|
Adj. EBITDA - NCI+SBC: means the relevant companys operating earnings (after
add-back
of stock-based compensation) before interest, taxes, depreciation and
amortization, less
non-controlling
interest expenses excluding certain non-cash expenses and non-recurring expenses.
|
|
|
|
Adj. EBITDA - NCI+SBC multiple: represents the relevant companys enterprise value divided by its historical or projected Adj. EBITDA - NCI+SBC.
|
|
|
|
Enterprise value: represents the relevant companys net equity value plus (i) the principal or face amount of total debt and preferred stock and less (ii) cash, cash equivalents, and short- and long-term
marketable investments.
|
|
|
|
LTM: means latest twelve months (as of September 30, 2017).
|
|
|
|
Net equity value: represents the relevant companys (i) gross equity value as calculated (a) based on outstanding common shares plus shares issuable upon the conversion or exercise of all
in-the-money
convertible securities, stock options and/or stock warrants times (b) the relevant companys stock price less (ii) the cash proceeds from the
assumed exercise of all
in-the-money
stock options and stock warrants.
|
|
|
|
NTM: means next twelve months (as of September 30, 2017).
|
|
|
|
Unlevered free cash flow: means the relevant companys
after-tax
unlevered operating cash flow minus CapEx and changes in working capital.
|
89
|
|
|
VWAP: means volume-weighted average share price over the indicated period of time.
|
|
|
|
WACC: means weighted average cost of capital.
|
Recap of Implied Merger Financial Metrics
Based on the Almost Family/LHC merger exchange ratio of 0.9150 shares of LHC common stock for each share of Almost Family common stock, Almost
Familys closing stock price of $52.70 on November 14, 2017 and LHCs closing stock price of $68.78 on November 14, 2017, Guggenheim Securities calculated various implied merger-related premia and multiples as outlined in the
table below:
|
|
|
|
|
|
|
|
|
Merger Premia
and Implied Merger Multiples
|
|
Implied Merger Price per Share of Almost Family Common Stock
|
|
|
$
|
62.93
|
|
|
|
|
|
|
Almost
Family
Stock
Price
|
|
|
|
|
Acquisition Premium/(Discount) Relative to Almost Familys:
|
|
|
|
|
|
|
|
|
Stock Price @ 11/14/17
|
|
$
|
52.70
|
|
|
|
19.4
|
%
|
Past Years High Stock Price
|
|
|
62.95
|
|
|
|
(0.0
|
)
|
90-Day
VWAP @ 11/14/17
|
|
|
49.23
|
|
|
|
27.8
|
|
|
|
|
Transaction Enterprise Value / Adj. EBITDA
-
NCI+SBC for Almost
Family:
|
|
|
|
|
|
|
|
|
LTM Actual
|
|
|
|
|
|
|
15.1x
|
|
NTM Wall Street Consensus Estimates
|
|
|
|
|
|
|
13.3
|
|
Almost Family
Management Estimates
|
|
|
|
|
|
|
12.0
|
|
90
Almost Family Stand-Alone Financial Analyses
Recap of Almost Family Stand-Alone Financial Analyses.
In evaluating Almost Family in connection with rendering its opinion, Guggenheim
Securities performed various financial analyses which are summarized in the table below and described in more detail elsewhere herein, including discounted cash flow analysis and selected publicly traded companies analysis. Solely for informational
reference purposes, Guggenheim Securities also reviewed selected precedent merger and acquisition transactions analysis, the historical trading price range for Almost Familys common stock, and Wall Street equity research analysts price
targets for Almost Familys common stock.
|
|
|
|
|
|
|
|
|
Recap of Almost
Family Stand-Alone Financial Analyses
|
|
Implied Merger Price per Share of Almost Family Common Stock
|
|
|
$
|
62.93
|
|
Illustrative Pro Forma Market-Based Value of Merger Consideration (1)
|
|
|
|
66.75
|
|
Illustrative Pro Forma
DCF-Based
Value of
Merger Consideration (2)
|
|
|
|
60.34
|
|
|
|
|
|
Reference Range for
Almost Family on
a Stand-Alone Basis
|
|
Financial Analyses
|
|
Low
|
|
|
High
|
|
Discounted Cash Flow Analysis
|
|
$
|
41.71
|
|
|
$
|
56.52
|
|
Selected Publicly Traded Companies Analysis:
|
|
|
|
|
|
|
|
|
Wall Street Consensus Estimated NTM Adj. EBITDA - NCI+SBC
|
|
|
42.19
|
|
|
|
70.76
|
|
Almost Family Management Estimated NTM Adj. EBITDA -NCI+SBC
|
|
|
47.72
|
|
|
|
79.47
|
|
Wall Street Consensus Estimated NTM Adj. EPS
|
|
|
51.75
|
|
|
|
69.01
|
|
Almost Family Management Estimated NTM Adj. EPS
|
|
|
59.71
|
|
|
|
79.63
|
|
|
|
|
For Informational Reference Purposes
|
|
|
|
|
|
|
Selected Precedent M&A Transactions Analysis
|
|
$
|
43.94
|
|
|
$
|
51.47
|
|
Almost Familys Stock Price Range During Past Year
|
|
|
39.34
|
|
|
|
62.95
|
|
Wall Street Equity Research Price Targets
|
|
|
48.90
|
|
|
|
54.33
|
|
(1)
|
Represents the illustrative pro forma value of the merger consideration determined on a market value basis, calculated based on (i) the stand-alone equity value of Almost Family as of November 14, 2017, (ii)
the implied value of the merger premium and (iii) Almost Familys share of the cost synergies at the merger-implied equity ownership splits of 41.5% / 58.5% for Almost Family and LHC stockholders, respectively (capitalizing the
merger-related
run-rate
synergies at a blended NTM Adj. EBITDA - NCI+SBC multiple of 12.2x).
|
(2)
|
Represents the illustrative pro forma value of the merger consideration determined on a discounted cash flow basis, calculated based on (i) the merger-implied equity ownership splits of 41.5% / 58.5% for Almost
Family and LHC stockholders, respectively and (ii) the midpoint (i.e., assuming a perpetuity growth rate of 2%)
DCF-based
value of the combined company, taking into account merger-related cost and capital
markets synergies. See Opinion of Almost Familys Financial Advisor Illustrative Has/Gets Analysis beginning on page 95 below.
|
Almost Family Discounted Cash Flow Analysis.
Guggenheim Securities performed illustrative stand-alone discounted cash flow analysis of Almost Family
based on projected
after-tax
unlevered free cash flows for Almost Family and an estimate of its terminal/continuing value at the end of the projection horizon. In performing its illustrative discounted cash
flow analysis:
|
|
|
Guggenheim Securities based its discounted cash flow analysis on the five-year financial projections for Almost Family as provided by Almost Familys senior management.
|
91
|
|
|
Guggenheim Securities used a discount rate range of 8.50% 10.00% based on its estimate of Almost Familys weighted average cost of capital.
|
|
|
|
In calculating Almost Familys terminal/continuing value for purposes of its discounted cash flow analysis, Guggenheim Securities used an illustrative reference range of perpetual growth rates of Almost
Familys terminal year normalized
after-tax
unlevered free cash flow of 1.75% 2.25%. The illustrative terminal/continuing values implied by the foregoing perpetual growth rate reference
range were cross-checked for reasonableness by reference to Almost Familys implied terminal year Adj. EBITDA - NCI+SBC multiples.
|
|
|
|
Guggenheim Securities illustrative discounted cash flow analysis resulted in an overall reference range of $41.71 $56.52 per share for purposes of evaluating Almost Familys common stock on a
stand-alone intrinsic-value basis.
|
|
|
|
Guggenheim Securities noted that the implied merger price of $62.93 per share was above the foregoing
DCF-based
reference range based on the illustrative discounted cash flow
analysis.
|
Almost Family Selected Publicly Traded Companies Analysis.
Guggenheim Securities reviewed and analyzed Almost
Familys historical stock price performance, trading metrics and historical and projected/forecasted financial performance compared to corresponding data for certain publicly traded companies that Guggenheim Securities deemed relevant for
purposes of this analysis based on participation in the home healthcare sector. The following three publicly traded companies were selected, in addition to Almost Family and LHC, by Guggenheim Securities for purposes of this analysis:
|
Selected Publicly Traded Companies
|
Publicly Traded Companies
|
Amedisys, Inc.
|
Addus Homecare Corporation
|
Chemed Corporation
|
Guggenheim Securities calculated, among other things, various public market trading multiples for Almost
Family, LHC and the selected three publicly traded companies identified above (in the case of the selected publicly traded companies, based on Wall Street equity research consensus estimates and each companys most recent publicly available
financial filings), which are summarized in the table below:
|
|
|
|
|
|
|
|
|
Selected
Publicly Traded Company Multiples
|
|
|
|
Enterprise Value /
|
|
|
Stock Price @
11/14/17 /
|
|
|
|
NTM Adj.
EBITDA - NCI+SBC
|
|
|
NTM Adj. EPS
|
|
Median
|
|
|
11.4x
|
|
|
|
23.6x
|
|
High
|
|
|
14.8
|
|
|
|
27.7
|
|
Low
|
|
|
9.4
|
|
|
|
20.8
|
|
Almost Family Trading Basis
|
|
|
11.4x
|
|
|
|
21.1x
|
|
In performing its selected publicly traded companies analysis with respect to Almost Family:
|
|
|
Guggenheim Securities selected reference ranges of trading multiples for purposes of evaluating Almost Family on a stand-alone public market trading basis as follows: (i) trading enterprise value / NTM Adj.
EBITDA - NCI+SBC multiple range of 9.4x 14.8x; and (ii) trading price / NTM Adj. EPS multiple range of 20.8x 27.7x.
|
|
|
|
Guggenheim Securities analysis of the selected publicly traded companies resulted in an overall reference range of $42.19 $79.63 per share for purposes of evaluating Almost Familys common
stock on a stand-alone public market trading basis.
|
92
|
|
|
Guggenheim Securities noted that the implied merger price of $62.93 per share was in line with the foregoing public market trading reference range based on the selected publicly traded companies analysis.
|
LHC Stand-Alone Financial Analyses
Recap of LHC Stand-Alone Financial Analysis.
In evaluating LHC in connection with rendering its opinion, Guggenheim Securities performed various
financial analyses which are summarized in the table below and described in more detail elsewhere herein, including discounted cash flow analysis and selected publicly traded companies analysis. Solely for informational reference purposes,
Guggenheim Securities also reviewed the historical trading price range for LHCs common stock and Wall Street equity research analysts price targets for LHCs common stock.
|
|
|
|
|
|
|
|
|
Recap of LHC
Stand-Alone Financial Analyses
|
|
Price per Share of LHC Common Stock @ 11/14/17
|
|
|
$68.78
|
|
|
|
|
|
Reference Range
for LHC on
a Stand-Alone
Basis
|
|
Financial Analyses
|
|
Low
|
|
|
High
|
|
Discounted Cash Flow Analysis
|
|
$
|
49.61
|
|
|
$
|
69.23
|
|
Selected Publicly Traded Companies Analysis:
|
|
|
|
|
|
|
|
|
Wall Street Consensus Estimated NTM Adj. EBITDA -NCI+SBC
|
|
|
48.74
|
|
|
|
80.25
|
|
LHC Management Estimated NTM Adj. EBITDA -NCI+SBC
|
|
|
51.33
|
|
|
|
84.34
|
|
Wall Street Consensus Estimated NTM Adj. EPS
|
|
|
54.97
|
|
|
|
73.30
|
|
LHC Management Estimated NTM Adj. EPS
|
|
|
59.43
|
|
|
|
79.25
|
|
|
|
|
For Informational Reference Purposes
|
|
|
|
|
|
|
LHCs Stock Price Range During Past Year
|
|
$
|
41.66
|
|
|
$
|
76.14
|
|
Wall Street Equity Research Price Targets
|
|
|
57.33
|
|
|
|
75.53
|
|
LHC Discounted Cash Flow Analysis.
Guggenheim Securities performed illustrative stand-alone discounted cash flow
analysis of LHC based on projected
after-tax
unlevered free cash flows for LHC and an estimate of its terminal/continuing value at the end of the projection horizon. In performing its illustrative discounted
cash flow analysis:
|
|
|
Guggenheim Securities based its discounted cash flow analysis on the five-year financial projections for LHC as provided by LHCs senior management (and approved for use by Almost Familys senior management).
|
|
|
|
Guggenheim Securities used a discount rate range of 8.00% 9.50% based on its estimate of LHCs weighted average cost of capital.
|
|
|
|
In calculating LHCs terminal/continuing value for purposes of its discounted cash flow analysis, Guggenheim Securities used an illustrative reference range of perpetual growth rates of LHCs terminal year
normalized
after-tax
unlevered free cash flow of 1.75% 2.25%. The illustrative terminal/continuing values implied by the foregoing perpetual growth rate reference range were cross-checked for
reasonableness by reference to LHCs implied terminal year Adj. EBITDA - NCI+SBC multiples.
|
|
|
|
Guggenheim Securities illustrative discounted cash flow analysis resulted in an overall reference range of $49.61 $69.23 per share for purposes of evaluating LHCs common stock on a
stand-alone intrinsic-value basis.
|
93
|
|
|
Guggenheim Securities noted that the price per share of LHC common stock at November 14, 2017 of $68.78 was in line with the foregoing
DCF-based
reference range based on the
illustrative discounted cash flow analysis.
|
LHC Selected Publicly Traded Companies Analysis.
Guggenheim Securities reviewed and
analyzed LHCs historical stock price performance, trading metrics and historical and projected/forecasted financial performance compared to corresponding data for the same publicly traded companies that Guggenheim Securities used for the
purposes of its selected publicly traded companies analysis with respect to Almost Family, which are described above under the caption Almost Family Selected Publicly Traded Companies Analysis beginning on page 92 of this joint proxy
statement/prospectus.
In performing its selected publicly traded companies analysis with respect to LHC:
|
|
|
Guggenheim Securities selected reference ranges of trading multiples for purposes of evaluating LHC on a stand-alone public market trading basis as follows: (i) trading enterprise value / NTM Adj.
EBITDA - NCI+SBC multiple range of 9.4x 14.8x; and (ii) trading price / NTM Adj. EPS multiple range of 20.8x 27.7x.
|
|
|
|
Guggenheim Securities analysis of the selected publicly traded companies resulted in an overall reference range of $48.74 $84.34 per share for purposes of evaluating LHCs common stock on a
stand-alone public market trading basis.
|
|
|
|
Guggenheim Securities noted that the price per share of LHC common stock at November 14, 2017 of $68.78 was in line with the foregoing public market trading reference range based on the selected publicly traded
companies analysis.
|
Exchange Ratio Analyses
Historical Trading Market Exchange Ratio Analysis.
Guggenheim Securities compared the Almost Family/LHC merger exchange ratio of 0.9150 shares of LHC
common stock for each share of Almost Family common stock with the observed trading market exchange ratios of Almost Family common stock and LHC common stock during various timeframes as indicated in the table below:
|
|
|
|
|
|
|
|
|
Almost
Family/LHC Merger Exchange Ratio vs
Observed Trading Market Exchange Ratios
|
|
Almost Family/LHC Merger Exchange Ratio
|
|
|
|
0.9150
|
|
|
|
|
|
|
Observed
Trading
Market
Exchange
Ratio
(Almost
Family/LHC)
|
|
|
Almost
Family/LHC
Merger
Exchange
Ratio
Premium/
(Discount)
|
|
Closing Trading Market Exchange Ratio @ 11/14/17
|
|
|
0.7662
|
|
|
|
19.4
|
%
|
Average Trading Market Exchange Ratio During:
|
|
|
|
|
|
|
|
|
Past Year
|
|
|
0.8836
|
|
|
|
3.6
|
%
|
Past Two Years
|
|
|
0.9375
|
|
|
|
(2.4
|
)%
|
Implied Exchange Ratio Analysis
. In assessing the Almost Family/LHC merger exchange ratio, Guggenheim Securities
derived illustrative valuation ranges for the common shares of Almost Family and LHC, respectively, using the financial methodologies described above under the captions Almost Family Selected Publicly Traded Companies Analysis,
Almost Family Discounted Cash Flow Analysis, LHC Selected Publicly Traded Companies Analysis, and LHC Discounted Cash Flow Analysis.
The following table summarizes the implied exchange ratios derived using each of foregoing financial methodologies. In addition, the table
includes, for informational reference purposes only, the implied exchange
94
ratios as calculated by Guggenheim Securities based on Almost Familys and LHCs respective stock price trading ranges during the past year and Wall Street equity research analyst price
targets for each of Almost Family and LHC, respectively. With respect to any given range of implied exchange ratios, the high implied exchange ratio assumes the maximum Almost Family per share equity value and minimum LHC per share equity value,
while the low implied exchange ratio assumes the minimum Almost Family per share equity value and maximum LHC per share equity value.
|
|
|
|
|
|
|
|
|
Implied
Exchange Ratio Analysis
|
|
Almost Family/LHC Merger Exchange Ratio
|
|
|
|
0.9150
|
|
|
|
|
|
Implied
Exchange
Ratio
|
|
Financial Analyses
|
|
Low
|
|
|
High
|
|
Discounted Cash Flow Analysis
|
|
|
0.6025
|
|
|
|
1.1392
|
|
Selected Publicly Traded Companies Analysis:
|
|
|
|
|
|
|
|
|
Wall Street Consensus Estimated NTM Adj. EBITDA - NCI+SBC
|
|
|
0.5257
|
|
|
|
1.4517
|
|
Almost Family and LHCs Management Estimated NTM Adj. EBITDA -NCI+SBC
|
|
|
0.5657
|
|
|
|
1.5482
|
|
Wall Street Consensus Estimated NTM Adj. EPS
|
|
|
0.7059
|
|
|
|
1.2555
|
|
Almost Family and LHCs Management Estimated NTM Adj. EPS
|
|
|
0.7535
|
|
|
|
1.3401
|
|
|
|
|
For Informational Reference Purposes
|
|
|
|
|
|
|
Almost Familys and LHCs Stock Price Range During Past Year
|
|
|
0.5167
|
|
|
|
1.5112
|
|
Wall Street Equity Research Price Targets
|
|
|
0.6474
|
|
|
|
0.9477
|
|
Guggenheim Securities financial analyses resulted in an implied exchange ratio reference range of
0.5167 1.5482, as compared to the Almost Family/LHC merger exchange ratio of 0.9150.
Illustrative Has/Gets Analysis
Guggenheim Securities analyzed the illustrative pro forma financial impact of the merger on Almost Familys stand-alone discounted cash
flow valuation per share of Almost Family common stock based on (i) the Almost Family financial projections prepared and provided to Guggenheim Securities by Almost Familys senior management, (ii) the LHC financial projections
prepared and provided to Guggenheim Securities by LHCs senior management, (iii) the synergy estimates jointly prepared and provided to Guggenheim Securities by Almost Familys senior management and LHCs senior management,
(iv) the Almost Family/LHC merger exchange ratio of 0.9150 and (v) a range of illustrative perpetuity growth rates of 1.75% to 2.25% and corresponding illustrative WACCs of 8.50% to 10.00% (in the case of Almost Family on a stand-alone
basis) and 7.75% to 9.25% (in the case of the combined company). Guggenheim Securities noted that holders of Almost Family common stock could experience illustrative (i) pro forma intrinsic value dilution of 0.9% to pro forma intrinsic value
accretion of 27.9% (in the case of a 2.25% perpetuity growth rate), (ii) pro forma intrinsic value dilution of 1.3% to pro forma intrinsic value accretion of 25.4% (in the case of a 2.00% perpetuity growth rate) and (iii) pro forma intrinsic
value dilution of 1.7% to pro forma intrinsic value accretion of 23.6% (in the case of a 1.75% perpetuity growth rate), in each case calculated without and with the application of expected capital market and cost synergies, respectively.
Other Financial Reviews and Analyses Solely for Informational Reference Purposes
In order to provide certain context for the financial analyses in connection with its opinion as described above, Guggenheim Securities
undertook various additional financial reviews and analyses as summarized below solely for informational reference purposes. As a general matter, Guggenheim Securities did not consider such additional financial reviews and analyses to be
determinative methodologies for purposes of its opinion.
95
Contribution Analysis.
Guggenheim Securities compared certain of Almost Familys and LHCs
respective enterprise-related value flow item (e.g., Adj. EBITDA - NCI+SBC) contribution percentages and equity-related flow item (e.g., adjusted net income) contribution percentages with the net diluted merger-implied ownership splits for
Almost Familys stockholders and LHCs stockholders (in each case as implied by the Almost Family/LHC merger exchange ratio of 0.9150). In order to facilitate the comparability of such enterprise-related flow item contribution percentages
with the merger-related equity ownership splits, Guggenheim Securities leverage adjusted Almost Familys and LHCs respective enterprise-related flow item contribution percentages based on the assumed market-based enterprise value of the
combined company and Almost Familys and LHCs respective stand-alone net debt balances.
The results of such contribution analyses, both with and without the synergy estimates, are
indicated in charts below:
Contribution Analysis without Synergies
Contribution Analysis with Synergies
Almost Family Selected Precedent Merger and Acquisition Transactions Analysis.
Guggenheim Securities reviewed and analyzed certain financial metrics associated with eight selected precedent merger and acquisition
96
transactions during the past several years involving companies in the home healthcare sector that Guggenheim Securities deemed relevant for purposes of this analysis based on their participation
in the home healthcare sector. Based on Guggenheim Securities calculations of, among other things and to the extent publicly available, certain implied
change-of-control
transaction multiples for the selected precedent merger and acquisition transactions:
|
|
|
Guggenheim Securities selected a reference transaction enterprise value / LTM Adj.
EBITDA - NCI+SBC
multiple range of 11.0x 12.6x.
|
|
|
|
Guggenheim Securities analysis of the selected precedent merger and acquisition transactions resulted in an overall reference range of $43.94 $51.47 per share for purposes of evaluating Almost
Familys common stock on a
change-of-control
basis.
|
|
|
|
For comparison purposes, Guggenheim Securities noted that the implied merger price per share of $62.93 was above the foregoing
change-of-control
transaction reference range based on the selected precedent merger and acquisition transactions analysis.
|
LHC and Almost Family
s Wall Street Equity Research Analyst Stock Price Targets
. Guggenheim Securities reviewed selected Wall Street
equity research analyst stock price targets for each of LHC and Almost Family, respectively, as published prior to November 14, 2017 (the last practicable trading day prior to Almost Familys board meeting to consider and approve the
merger). Guggenheim Securities noted that such Wall Street equity research analyst stock price targets for Almost Familys common stock and LHCs common stock were $54.00 $60.00 per share and $63.00 $83.00
per share, respectively. Using illustrative discount rates of 10.4% and 9.9%, respectively (which reflected the midpoints of Guggenheim Securities estimates of Almost Familys and LHCs respective costs of equity), Guggenheim
Securities discounted back such Wall Street equity research analysts stock price targets to arrive at illustrative present values of such Wall Street equity research analyst stock price targets for Almost Familys common stock and
LHCs common stock of $48.90 $54.33 per share and $57.33 $75.53 per share, respectively. For comparison purposes, Guggenheim Securities noted that the implied merger price per share of Almost Familys
common stock was $62.93 based on the Almost Family/LHC merger exchange ratio of 0.9150 and Almost Familys closing stock price of $52.70 as of November 14, 2017 and LHCs closing stock price of $68.78 as of November 14, 2017.
Other Considerations
Except
as described in the summary above, Almost Family did not provide specific instructions to, or place any limitations on, Guggenheim Securities with respect to the procedures to be followed or factors to be considered in performing its financial
analyses or providing its opinion. The type and amount of consideration payable in the merger were determined through negotiations between Almost Family and LHC and were approved by Almost Familys board of directors. The decision to enter into
the merger agreement was solely that of Almost Familys board of directors. Guggenheim Securities opinion was just one of the many factors taken into consideration by Almost Familys board of directors. Consequently, Guggenheim
Securities financial analyses should not be viewed as determinative of the decision of Almost Familys board of directors with respect to the fairness, from a financial point of view, to the stockholders of Almost Family of the exchange
ratio pursuant to the merger.
Pursuant to the terms of Guggenheim Securities engagement, Almost Family has agreed to pay Guggenheim
Securities a cash transaction fee (based on a percentage of the aggregate value of the merger) upon consummation of the merger, which cash transaction fee currently is estimated to be $9,762,658. In connection with Guggenheim Securities
engagement, Almost Family has previously paid Guggenheim Securities (i) a cash milestone fee of $2,440,665 that became payable upon execution of a definitive agreement with respect to the announcement of the merger, which will be credited
against the foregoing cash transaction fee. In addition, Almost Family has agreed to reimburse Guggenheim Securities for certain expenses and to indemnify Guggenheim Securities against certain liabilities arising out of its engagement. Guggenheim
Securities may seek
97
to provide Almost Family and LHC and their respective affiliates with certain financial advisory and investment banking services unrelated to the merger in the future, for which services
Guggenheim Securities would expect to receive compensation.
During the past two years, Guggenheim Securities has been engaged by Almost
Family in connection with various potential strategic and financial initiatives unrelated to the merger, none of which has resulted in an announced transaction or the receipt by Guggenheim Securities of any investment banking or financial advisory
fees. During the past two years, Guggenheim Securities has not been engaged by LHC to provide financial advisory or investment banking services or received any investment banking or financial advisory fees from LHC.
Guggenheim Securities and its affiliates and related entities engage in a wide range of financial services activities for its and their own
accounts and the accounts of customers, including but not limited to: asset, investment and wealth management; insurance services; investment banking, corporate finance, mergers and acquisitions and restructuring; merchant banking; fixed income and
equity sales, trading and research; and derivatives, foreign exchange and futures. In the ordinary course of these activities, Guggenheim Securities and its affiliates and related entities may (i) provide such financial services to Almost
Family, LHC, other participants in the merger and their respective affiliates, for which services Guggenheim Securities and its affiliates and related entities may have received, and may in the future receive, compensation and (ii) directly and
indirectly hold long and short positions, trade and otherwise conduct such activities in or with respect to loans, debt and equity securities and derivative products of or relating to Almost Family, LHC, other participants in the merger and their
respective affiliates. Furthermore, Guggenheim Securities and its affiliates and related entities and its or their respective directors, officers, employees, consultants and agents may have investments in Almost Family, LHC, other participants in
the merger and their respective affiliates.
Consistent with applicable legal and regulatory guidelines, Guggenheim Securities has adopted
certain policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Guggenheim Securities research analysts may hold views, make statements or investment recommendations and
publish research reports with respect to Almost Family, LHC, other participants in the merger and their respective affiliates and the merger that differ from the views of Guggenheim Securities investment banking personnel.