Activist Investor Elliott Management Eyes $7B Deal for Athenahealth

Elliott Management, the activist investor that purchased a 9 percent stake in Athenahealth last year, now wants to buy the whole company for nearly $7 billion, a deal that could bring more changes to the healthcare IT company.

Elliott proposes to acquire Watertown, MA-based Athenahealth (NASDAQ: ATHN) for $160 per share in cash, the New York-based investment fund manager said in a letter to Athenahealth’s board, which Elliott released to the public Monday. The proposal represents a 27 percent premium to Athenahealth’s closing stock price ($126.08 per share) on Friday. The company’s shares were trading above $146 as of mid-day Monday.

Elliott said the offer gives Athenahealth an enterprise value of approximately $6.9 billion, which includes debt.

In a prepared statement, Athenahealth said its board will now review the “unsolicited proposal.” This is far from a done deal—Elliott would still have to conduct a more thorough review of Athenahealth’s business, the two sides would have to negotiate and sign an acquisition agreement, and Athenahealth shareholders and government regulators would have to approve it.

But if the acquisition happens, it could bring a bigger shakeup at Athenahealth, which has been going through a transition period. A year ago, Elliott announced it had bought a 9.2 percent stake in Athenahealth. That sent the company’s shares up 40 percent during the following month, which reflected investor expectations that “long-awaited change would soon follow,” Elliott said in Monday’s letter.

And change did come—Athenahealth said in October it was laying off 9 percent of its staff, or about 500 people, and closing offices in San Francisco and Princeton, NJ. In addition to cutting costs, the idea was to make the company more “nimble” by reducing layers between entry-level workers and executives, and giving managers more “authority and accountability,” CEO Jonathan Bush (pictured above) said at the time.

In February, Athenahealth appointed former General Electric CEO Jeff Immelt as chair of its board of directors.

But Elliott isn’t satisfied with those moves.

“We believe the unfortunate but inescapable reality is that performance at Athenahealth is not going to get better,” the firm said in the letter to Athenahealth’s board. “The company already seems to be reverting back to long-established patterns of challenged execution and is unwilling to explore strategic alternatives for maximizing value. For shareholders, this means the future at Athenahealth is likely to look a lot like the past.”

According to Elliott, Athenahealth has struggled with executive turnover, sales execution, service delivery, product focus, hitting its stated financial performance targets, and several other issues. All of that has contributed to Athenahealth’s stock underperforming, Elliott argues.

The firm approached Athenahealth about an acquisition in November, but the company wasn’t willing to discuss it, Elliott said.

Athenahealth’s products include cloud-based electronic health records software, mobile apps, and patient engagement and care services for hospitals and outpatient care centers. The company generated $1.2 billion in revenue last year, up 13 percent from the previous year. Its net income was $53.1 million in 2017, more than double its $21 million profit in 2016.

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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