Amedisys founder, CEO Borne resigns _lowres

William Borne, Amedisys

William F. Borne, who oversaw Amedisys Inc.’s metamorphosis from a small regional company into one of the country’s largest home nursing providers, has resigned as chief executive officer, chairman and director.

Borne, who founded the Baton Rouge-based company in 1982, will now serve as chairman emeritus, the company said Monday.

Amedisys’ board of directors has named President and Chief Financial Officer Ronald A. LaBorde the interim CEO during a national search for a permanent CEO. LaBorde has been president and CFO for two years and a member of the board for 17 years, including nine years as lead director.

The board also made Donald A. Washburn, lead director, and David R. Pitts, director, as non-executive board co-chairmen. Washburn and Pitts will take a greater oversight role in the company’s operations.

“It’s never easy to see a founder leave, yet it’s not uncommon,” Pitts said. “Bill had the vision, drive and compassion to build an incredible company that at its core is focused on helping chronically ill patients and their families during their greatest times of need.”

Amedisys provides home health and hospice care to about 360,000 patients each year, with operations in 37 states, Puerto Rico and Washington, D.C.

Sheryl Skolnick, co-head of research for CRT Research and a longtime critic of Borne, said activist shareholder KKR Asset Management may have pressured Borne to leave or Amedisys’ board may have pushed him.

But Pitts said the change was driven by the board. LaBorde said the leadership change is the first step in positioning Amedisys for strong future performance.

Either way, Skolnick said, Borne’s departure will benefit Amedisys long-term, although for now Amedisys is in disarray both operationally and from a leadership perspective.

Skolnick said KKR, which controls 14.9 percent of Amedisys’ stock, probably won’t be satisfied with changing the CEO.

In late January, KKR requested that Nathaniel Zilkha, the company’s head of credit, be immediately nominated to Amedisys’ board.

KKR issued a statement Monday saying the firm, Amedisys’ board and management remain in “a constructive dialogue” about how to achieve long-term shareholder value.

The first part of KKR’s statement said the investment firm had “a good open dialogue” with Borne, described him as a very talented health care entrepreneur and wished him well in the future. KKR did not address Zilkha’s appointment.

Pitts said the board can’t speculate on how KKR or any other investor may react.

The board is in communication with KKR, and its request for a board seat is still being considered, Pitts said.

Rajesh P Narayanan, an associate professor of finance at LSU, said KKR has a large enough stake in Amedisys to push through any changes it desires. The other large institutional investors will go along because they’re getting the benefit of KKR’s efforts at no cost, and KKR knows that.

Narayanan said KKR will try to extract value out of Amedisys in one of two ways: by installing a new management team who can change a broken business model and run the company more efficiently or by changing the way the company is financed, taking on lots of cheap debt and creating value by taking the tax breaks on the interest payments.

“I think this time around it’s more about the business model,” Narayanan said. “The way Amedisys looks to outside investors — and these guys would have done a good bit of due diligence on it — is there is potential value that can be unlocked.”

KKR probably won’t make management changes in a single move, Narayanan said. Doing so would ruffle too many feathers.

KKR is more likely to find an industry specialist and arrange a compensation package that includes a large ownership stake, ensuring the new CEO’s incentives are well-aligned with KKR’s.

“Once that individual comes in, usually the top rung of management … the top three, four executives will change,” Narayanan said. “Some will leave voluntarily because of the team’s change. There’s a period of upheaval.”

But the transition will probably be completed fairly rapidly, in six or seven months, he said.

Up until 2010, Amedisys’ growth appeared inexorable. The company rolled to seven consecutive years of record profits. But in April 2010, The Wall Street Journal found the number of home therapy visits by Amedisys closely tracked the levels required to trigger lucrative Medicare bonus payments. The story led to investigations by the U.S. Senate Finance Committee, the Securities and Exchange Commission, and the Department of Justice.

The Senate investigation found in 2011 that Amedisys abused the Medicare bonus system at best and committed fraud at worst. But the committee levied no penalties. In November, Amedisys announced it had set aside $150 million to settle with the Justice Department. The SEC investigation is still underway.

In November, the company cut its 2013 earnings forecast to between 20 and 25 cents per share from 45 to 55 cents. Amedisys also lowered its 2013 net service revenue forecast to between $1.24 billion and $1.25 billion from the $1.24 billion to $1.28 billion range.

Meanwhile, Amedisys’ stock and financial performance has suffered in recent years, partly as the result of four years of cuts in Medicare payments. In the last four years, Amedisys has closed and/or sold dozens of underperforming home nursing centers.

The stock closed Monday at $16.95 per share, up 35 cents.

Narayanan said if KKR can get the price into the $30 or $40 range it will still make a good bit of return.

Amedisys’ has hired The Boston Consulting Group for business and industry analysis and advisement; Korn Ferry to conduct a national CEO search; and ReviveHealth for strategic communications, corporate marketing and health care industry consulting.