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Analysis

4 Takeaways as athenahealth Sells for Less, Board Investigated

By Jack O'Brien  
   November 15, 2018

Months of public negotiations and tribulations have resulted in a $5.7 billion acquisition of athenahealth set to close in Q1 2019, but it's not a done deal yet.

Earlier this week, athenahealth, the healthcare software company, entered into a definitive agreement to be purchased by Veritas Capital and Elliott Management Corp., two New York-based financial firms for $5.7 billion.

The proposed deal brings an end to months of rampant public negotiations and speculation around the fate of the embattled Watertown, Massachusetts–based health technology servicer.

In 2018, the company saw its longtime CEO Jonathan Bush resign over domestic violence and misconduct charges, engaged in a public back-and-forth with the board of directors for Elliott Management about a potential deal, and eventually agreed to sell for $135-per-share, less than the price the company's stock was trading at just two months prior.

Below are four main takeaways from the much-watched acquisition, which stretched across the greater part of 2018 and is expected to close in the first quarter of 2019.

Related: Athenahealth Confirms $5.7B Buyout, Reports Solid Q3 Earnings

1. Athenahealth sold for a lower price than was initially offered

 

When athenahealth was first soliciting offers to be purchased, it received an opportunity to be privatized for far more than the $135-per-share deal that was ultimately agreed upon by Veritas Capital and Elliott Management.

In May, Elliott founder Paul Singer extended a $7 billion cash bid for athenahealth, but rescinded the offer after the company's "careless response" to the proposal. The private equity firm pulled its $160-per-share bid for the company, aiming to purchase at a lower price, which it eventually succeeded at accomplishing.

This episode characterized the tense and mercurial nature of Elliott's attempts to take over athenahealth, as the companies engaged in a public war of words while ClearBridge, one of athenahealth's most prominent stakeholders, urged the company to accept the proposal.

However, as reports centered on the potential of athenahealth being purchased at $160-per-share, the company's stock rose and hovered near or above $150-per-share for most of the summer.

Even as recently as September, athenahealth's shares were still trading above $150, though a deal had not been agreed upon. Subsequently, the New York Post reported that the company had reached out to former suitors in hopes of finalizing an acquisition partner.

After announcing the Veritas-Elliot deal, athenahealth's stock has been trading above $130 for the first time since late September.

2. Investigation underway on behalf of Athenahealth stockholders

 

Due to the agreement to sell at $135-per-share, Kaskela Law LLC, a Radnor, Pennsylvania­–based law firm, announced Wednesday that it is conducting an investigation into the deal on behalf of athenahealth's shareholders.

The law firm said in a statement that the focus of the query is on whether the athenahealth's board of directors "failed to meet their legal obligations" to the company and its shareholders.

Additionally, Kaskela is seeking input from athenahealth shareholders to determine whether they had received "adequate consideration" for the stocks they held and have received "all material information in connection with the proposed transaction."

Following Bush's resignation in June, two separate analysts told HealthLeaders that they expected athenahealth's stock price to target near $180-per-share on the high side and $155-per-share on the low side in light of the greater likelihood of a sale.

3. Outside players and companies influenced healthcare deal

 

While the main narrative surrounding athenahealth this year focused on the financial direction of a struggling healthcare company, it was shaped by the involvement of several outsiders to the industry.

Jeff Immelt, former CEO of General Electric, joined athenahealth as chairman of the board of directors in February and assumed the role of executive chairman of the company in June following Bush's departure.

Immelt's leadership, along with the added support from CFO Marc Levine, played a significant role in navigating athenahealth through the post-Bush era and, ultimately, to the acquisition deal reached with Veritas and Elliott, through which Immelt was lauded as a "matchmaker" by The Boston Globe.  

Meanwhile, athenahealth's fate was also crafted in large part by Singer, the Elliott Management leader, who displayed a sizable influence on the proceedings throughout the year. Singer's significant influence over athenahealth was featured prominently in a New Yorker profile from late August.

As the largest shareholder in athenahealth, owning 9% of the company, Singer's hedge fund was able to exert its sway even after the $7 billion deal was rebuffed, even publicly welcoming the leadership change in June. Elliot decided in October to bring in Veritas Capital, led by CEO Ramzi Musallam, as another private equity firm to fund a joint bid to buy athenahealth.

4. Health technology servicer posts solid financials in one of its final public earnings reports

 

Athenahealth's Q3 earnings report featured the company's strong bottom line through tumultuous times, as it topped $331 million in total revenues and posted a GAAP net income of $21.5 million.

The company also saw 7% year-over-year growth in covered lives through its population health services division and discharge bed days increase for its subsidiary athenaOne by 19%.

Since athenahealth is expected to be privatized in Q1 2019, its Q4 2018 earnings report will be the final one issued since the company went public in 2007.

Jack O'Brien is the finance editor at HealthLeaders. 


KEY TAKEAWAYS

The health technology servicer will be purchased for $5.7 billion in a joint bid, months after losing a $7 billion offer.

A Pennsylvania-based law firm is investigating the company's board of directors for failing to meet their "legal obligations" to the shareholders.

The proposed deal will take athenahealth private in Q1 2019 when the acquisition is expected to close.


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