Gentiva Health Services Inc agreed to buy Odyssey HealthCare Inc in a $1 billion cash deal, which could make it one of the top players in the U.S. home and hospice care market and spark more consolidation in the space.

Odyssey shares were up 37 percent at $26.34, just shy of the offer price. Meanwhile Gentiva shares gained a little over 12 percent Monday on Nasdaq.

Upon closing, Gentiva will control roughly 6 percent of the hospice market, Oppenheimer analyst Michael Wiederhorn said.

The deal puts Gentiva behind privately held Vitas Hospice Services LLC as the second largest provider in the U.S. hospice market, said Wiederhorn.

Gentiva is offering $27 per share to Odyssey shareholders, a premium of 40 percent based on Odyssey's Friday close.

At first glance this is certainly not a bargain price for Gentiva to pay, in our view, Wiederhorn said.

Gentiva said it would raise about $1.1 billion in new debt financing to fund the deal and to refinance existing debt.

The Atlanta, Georgia-based company had cash and cash equivalents of $168.9 million as of March 31, while total long-term debt stood at $232 million and total current liability $174.7 million.

This is a four times (debt to EBITDA) leverage ratio after this deal is done and the company generates pretty good cash flow. They have reimbursement visibility going forward, Jefferies & Co's Arthur Henderson said.

Henderson also added that he does not expect any anti-trust issues to hamper the deal from closing. He expects more consolidation in the hospices and home healthcare space, particularly after the reimbursement rate-cut introduced by the healthcare reform.

Home health care companies provide medical services such as physical therapy in patients' homes and can serve as an alternative to residential or long-term care health facilities. They must be certified to provide care to Medicare patients.

Hospice providers take care of terminally ill patients' health at home, both on a physical and an emotional level.

We believe this transaction could potentially open the floodgates for further M&A activity between home health and hospice providers as one industry represents a natural referral source for the other, BB&T Capital Markets analyst Eugene Goldenberg said.

Gentiva sees the deal adding to its adjusted earnings within the first 12 months after closing, which is expected in the third quarter of 2010.

Edge Healthcare Partners is acting as financial advisor to Gentiva and Goldman, Sachs & Co. is financial advisor to Odyssey.

(Reporting by Vidya L Nathan and Anurag Kotoky in Bangalore; Editing by Kavita Chandran, Aradhana Aravindan)

Healthcare