Cohen Milstein has been appointed co-lead counsel in a case on behalf of shareholders of RehabCare Group, Inc. (“RehabCare”) against RehabCare, its Board of Directors and Kindred Healthcare, Inc. (“Kindred”) to enjoin Kindred’s proposed buyout of RehabCare, and to compel RehabCare and its Board to fulfill their fiduciary duties to shareholders by seeking a higher purchase price through competing offers.
RehabCare and Kindred announced the proposed merger of the two companies on February 8. Under the definitive Agreement and Plan of Merger (“Merger Agreement”), RehabCare would be acquired for $1.3 billion.
Plaintiffs allege that the proposed merger price is not a fair price and does not reflect the intrinsic value of RehabCare. RehabCare’s revenues have shown steady and strong growth. Its 2010 revenues increased by 57% over 2009, growing from $849 million to $1.3 billion in 2010. Fourth quarter revenues in 2010 grew by 39% over 2009. Importantly, the Company has also outperformed its peers. RehabCare reported a 39% revenue increase in the 4th quarter of 2010, while its competitors, Kindred, HealthSouth and Select Medical Holdings Corporation, only reported growth of .4%, 4.3 % and 7.8 %, respectively. Analysts predict that the Company’s revenues and earnings per share will continue to grow in 2011 and 2012.
In light of RehabCare’s strengths and the potential synergies of the combined companies, Plaintiffs allege that the consideration offered in the proposed transaction is grossly inadequate and unfair to RehabCare’s shareholders. It is further unfair and inadequate in that RehabCare’s shareholders are being permanently cashed out of the majority of their investment in the Company. Finally, the merger price is the result of a flawed process during which RehabCare’s Board made no attempt to generate interest from other potential buyers, or otherwise to maximize value for the Company’s shareholders. Indeed, the Board failed to seek or explore other bidders and agreed to highly restrictive terms. For example, the Merger Agreement does not contain a “go shop” provision, which would allow the Company to solicit superior proposals from third parties. Instead, the Merger Agreement contains a restrictive “no solicitation” provision and a $26 million termination fee, which collectively are unreasonable and which effectively prevent the Board from entertaining more attractive bids in a meaningful way.
The case is pending in the Delaware Court of Chancery.
Order - March 9, 2011 [PDF]