Companies announced $118 billion in health care mergers and acquisitions in April alone. (TS image)

(Bloomberg) — Kindred Healthcare Inc., a provider of long-term care (LTC) services, made an unsolicited offer to buy Gentiva Health Services Inc. for about $533 million in a cash-and-stock deal that would expand services for an aging U.S. population.

Gentiva turned down the $14-a-share offer on May 13, as well as a bid last month of $13 a share, according to correspondence between the two companies released by Kindred today. Kindred valued the transaction at $1.6 billion including assumed debt.

“It’s a mistake for the board not to enter negotiations,” Sheryl Skolnick, an analyst with CRT Capital Group L.L.C., said in a telephone interview. “Kindred is the logical strategic buyer. It really needs to be a strategic buyer with the level of debt Gentiva has.”

About $118 billion of health-care mergers and acquisitions were announced or proposed last month, a record, according to data compiled by Bloomberg that dates back to 2002. It’s almost as much as the $174 billion that was earmarked for health-care deals for all of last year, the data show.

Kindred offered $7 a share in cash and $7 a share in stock, and is willing to pay the total amount in cash, the company said in a statement today. The $14-a-share bid values Atlanta-based Gentiva at 64 percent more than its closing share price yesterday of $8.54.

The acquisition of Gentiva would help Kindred serve elderly patients, with the number of people over the age of 65 expected to double to 21 percent of the U.S. population, Diaz said on a conference call today. Kindred would add Gentiva’s 500 facilities for home health, hospice and community care service to Kindred’s more than 2,000 post-acute facilities in hospitals, nursing centers and rehabilitation centers.

The combined company would have annual revenue of about $7.2 billion, serve 127,000 patients per day, operate in 47 states and employ about 110,000 people, Kindred said.

The deal is a “a highly compelling proposal that would create considerable value” for shareholders of both companies, Diaz said. It would also be “significantly and immediately accretive to Kindred’s earnings.”

Gentiva surged 62 percent to $13.85 at 9:52 a.m. New York time. The shares had fallen 20 percent in the 12 months through yesterday. Kindred rose 5.5 percent to $23.12 after gaining 80 percent in the last 12 months.

“Our board continues to believe that our long-term strategy as a stand-alone company will generate substantially more value to our shareholders,” Gentiva Chairman Rod Windley wrote in the May 13 letter to Paul Diaz, Kindred’s chief executive officer.

Eric Slusser, Gentiva’s chief financial officer, didn’t immediately return a call seeking comment.

Gentiva on May 7 reported first-quarter profit of 13 cents a share, beating analysts’ estimates by 2 cents. The company reaffirmed its 2014 forecast of earnings, excluding one-time items, of 85 cents to $1.15 a share on revenue of $1.9 billion to $2.1 billion.

Diaz said Kindred elected to make its proposal known to Gentiva’s shareholders after being rejected.

“We have undertaken extensive efforts and had several private discussions with Gentiva’s management team in an effort to engage Gentiva on a mutually acceptable transaction,” Diaz said in the statement. “Gentiva has indicated repeatedly that it is not willing to discuss a transaction at this time.”

Citigroup Inc. is acting as financial adviser to Kindred, and Cleary Gottlieb Steen & Hamilton LLP is acting as legal adviser.

–With assistance from Kristen Hallam in London and Simeon Bennett in Geneva.

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