Amedisys Stock Gains as Merger Extension Raises Hope for UnitedHealth Deal

Amedisys (AMED) shares climbed Friday after the provider of home health care agreed to waive its right to terminate a merger agreement with UnitedHealth Group (UNH), bolstering expectations that the deal will succeed despite a government attempt to block it. Shares of Amedisys were up 4.7% to $89.97, marking a fifth consecutive day of gains. Amedisys agreed to be acquired for $3.3 billion, or $101 a share in cash, in June 2023, but the Justice Department filed a civil antitrust lawsuit last month, saying the proposal would eliminate competition in the hospice industry.

The extension comes more than a month after the DOJ and three U.S. states filed a lawsuit to block the deal, citing concerns that it would reduce competition in the home health services market. The companies have entered into a new waiver agreement, which extends the merger deadline to 10 days after a final court decision is issued in the lawsuit or Dec. 31, 2025, whichever is earlier, the filing said.

The new waiver also contains waivers by the Parties such that, (i) the Regulatory Break Fee under the Merger Agreement will be $275,000,000, which may escalate for the failure to meet certain timing milestones related to divesting certain assets to gain approval up to $325,000,000; (ii) the revenue-related aspect of the definition of “Burdensome Condition” is increased, (iii) Amedisys may take certain actions that would otherwise be prohibited by interim operating covenants contained in the Merger Agreement and (iv) certain closing conditions relating to government approvals are no longer conditions to the consummation of the Merger.

The extension and the increased break fee structure incentivize both companies to work towards a resolution that satisfies the regulatory concerns and allows the merger to proceed. The increased break fee serves as a strong financial disincentive for both companies to delay the divestment process, encouraging them to prioritize and expedite the divestment of certain assets to avoid incurring additional costs.

The regulatory break fee structure also influences the court's decision regarding the merger's approval. The court might consider the break fee structure as a sign of the companies' commitment to addressing the regulatory issues and finding a solution that benefits all parties involved. If the companies are willing to incur a significant financial penalty for failing to meet certain conditions, it could indicate that they are serious about ensuring the merger's success and mitigating any potential negative impacts on competition.

The divestment of certain assets by May 1 could significantly influence the outcome of the merger and the future of both companies. If the companies successfully divest the required assets by May 1, they will avoid paying the increased break fee, which could be a significant financial burden. This divestment could also help address the regulatory concerns raised by the U.S. Department of Justice (DOJ) and the attorneys general of Maryland, New Jersey, and New York. These regulators argue that the merger could give UnitedHealth too much control in the market for home health and hospice services, potentially harming patients, insurers, and nurses. By divesting certain assets, the companies may be able to alleviate these concerns and increase the likelihood of the merger being approved.

On the other hand, if the companies fail to divest the required assets by May 1, they may face a substantial financial penalty and increased regulatory scrutiny. This could delay the merger process or even lead to its collapse, negatively impacting the future of both companies. A failed merger could result in reputational damage, lost opportunities, and potential legal issues for both UNH and AMED.

In conclusion, the extension of the merger deadline and the increased break fee structure raise hope for the UnitedHealth-Amedisys deal, as they incentivize both companies to work towards a resolution that addresses regulatory concerns and allows the merger to proceed. However, the ultimate outcome of the merger will depend on the court's decision and the companies' ability to successfully divest certain assets by May 1. Investors should closely monitor the situation and consider the potential risks and benefits before making any investment decisions.