An investor in RehabCare Group, Inc. filed a lawsuit in State Court against members of RehabCare’s Board of Directors and Kindred Healthcare, Inc in effort to stop the proposed takeover of RehabCare Group by Kindred Healthcare under the current conditions.
According to the complaint the plaintiff alleges that directors of St. Louis based RehabCare Group breached of fiduciary duties arising out of their attempt to sell RehabCare Group to Kindred Healthcare via an unfair process at an unfair price.

On Tuesday, Feb 8, 2011 RehabCare Group, Inc. (NYSE:RHB) and Kindred Healthcare, Inc. ( Kindred ) (NYSE:KND) announced the signing of a merger agreement under which Kindred Healthcare will acquire RehabCare Group. Under the terms of the merger agreement, each stockholder of RehabCare Group common stock will receive $26 per RHB share in cash and 0.471 of a share of Kindred Healthcare, Inc common stock KND or a current value of approximately $35 per RHB share. The aggregate value of the pending transaction approximates $1.3 billion, including approximately $400 million of existing indebtedness.

The plaintiff alleges the merger price is inadequate and substantially undervalues RehabCare Group, Inc.
In fact shares of RehabCare Group, Inc. (NYSE: RHB) rose in response to the takeover proposal from $25.90 per share on Monday to $37.05 on Tuesday February 08 and closed last week trading at $37.23 per shares, thus succeeding by far the implied offer value of approximately $35.
The plaintiff also claims that Kindred’s stock closed at $25 per share on the day the transaction was announced, up $5.52 per share, or 28.3%, demonstrating the market’s belief that the proposed transaction is a bargain for Kindred. In addition the plaintiff says the offered price is also inadequate because RehabCare Group continues to have stellar revenue growth. Indeed RehabCare Group has performed exceptionally well for its shareholders in the past. Rehabcare has recently beat analysts' expectations, posting fourth-quarter earnings of $17.1 million, or $0.69 per share, up from $655,000 or $0.03 a share, a year earlier. RehabCare Group’s 12months Total Revenue went from $611.56million in 2006 to $869.43million in 2009. Its Net Income increased over the same time frame from $7.28million to $23.79million in 2009. RehabCare Group reported for the first three quarters in 2010 a combined nine months Total Revenue that was larger than its total 12months Revenue in 2009. RehabCare Group, Inc. reported a combined nine months Total Revenue of $1004.12million. Its combined nine months Net Income of $45.4million reported for the first three quarters in 2010 succeeded its 12months Net Income of 2009.

Further the plaintiff alleges that the merger agreement is missing a go shop provision, which would also RehabCare Group to solicit superior proposals from third parties, but rather included a restrictive ‘no solicitation’ provision and a $26million termination fee provision, that together prevent the board of directors from entertaining outside bids in any meaningful way.