Page 17 of 18 – SEC Filing
The proxy also fails to disclose critical
information about the process put in place to protect against a conflicted Kindred director who is also affiliated with TPG. We
are presently pursuing expedited discovery in the Delaware Court of Chancery to evaluate this conflict and whether it undermined
the Board’s sales process and/or prevented the Board from maximizing price. We emphasize here that filing suit was not our preferred
path, nor is shareholder activism our preferred strategy. But we have a responsibility to our investors to protect them from what
we see as clear consequences of the Board’s breaches of its fiduciary duties, including in connection with a potential debilitating
conflict.
Reject the Proposed Transaction
and Request that the Board Immediately
Begin a Reconstitution Program
In light of this ill-timed transaction
that plainly and materially undervalues the Company, we urge Kindred shareholders to reject $9 per share and vote against the
transaction. The Company is poised for improved growth and stronger free cash flow generation, which can be used to deleverage
and drive material share price appreciation. Kindred has ample liquidity, no near-term funded debt maturities, and will have the
ability to refinance its relatively high-cost-fixed-rate debt (and can thus avoid paying the significant early redemption penalties
that are contemplated and factored into the proposed transaction). Furthermore, there is a $5 to $6.64 per share cost related
to splitting up the Company (as set forth in the proxy materials) – which the buyers will incur if the merger is consummated
and therefore will have surely factored into their valuation of Kindred when coming up with the $9 per share bid – which
will be avoided by voting against the transaction. These cost savings will drive immediate shareholder value.
* * * * *
Should shareholders reject the proposed
transaction, we expect the Company and the Board to begin an orderly transition to new leadership via a prompt board refreshment
program and thorough review of the Company’s senior leadership and strategic direction, aided by the numerous favorable regulatory
developments highlighted in this letter. We believe the Board should conduct its own thoughtful evaluation of its membership. The
Board should nominate directors who rightly focus on creating meaningful, rather than lackluster, shareholder value, and who engage
and then mandate a capable management team that believes in and can execute upon the strategic direction outlined by the Company
over the last two years. Indeed, the Board is obligated by its fiduciary duties to nominate candidates who possess these characteristics
and who are qualified to steward the Company in this strategic direction. And, it is up to us, as the very essence of corporate
democracy, to exercise our franchise as shareholders by voting in support of candidates we deem qualified.
The Board needs new perspectives and additional
focus on holding senior leadership accountable for performance, relative to reasonable Board-approved expectations. Improved investor
communication coupled with execution against clearly defined clinical quality and financial targets will drive material shareholder
value and serve to increase the attractiveness of Kindred to potential business partners and/or acquirers at a more appropriate
time and at a valuation that more accurately reflects Kindred’s present business and bright future prospects.
Rejecting the proposed transaction and
taking a fresh look at Kindred leadership is the only step open to Kindred shareholders to ensure that their interests are protected.
We would embrace the opportunity to open a dialogue with the Board about these issues, and welcome any questions directly from
any member of the Board.
Kind regards,
/s/ Donald E. Morgan, III
Donald E. Morgan, III
cc: The Board of Directors
