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Bid of $6.5B for Athenahealth might be ploy to lure other bidders, including Anthem

May 7, 2018

Shares in Athenahealth Inc. surged the most since 2016 after activist investor Elliott Management Corp. bid to acquire the medical company for $160 a share, saying executives had “failed to correct a host of operational issues.”

Elliott, the New York hedge fund led by billionaire Paul Singer, said Monday that it made an all-cash takeover offer, which would value Athenahealth at $6.46 billion. Athenahealth, which makes an online platform doctors use to manage their practices, said in a written statement that its board will “carefully review the proposal.”

George Hill, an analyst with RBC Capital Markets in New York, said the offer price is low and expects it will ultimately be rejected by the board.

Some analysts say the bid could be a ploy to draw out other potential bidders, including Indianapolis-based health care insurer Anthem Inc.

“An offer from Elliott could also be an attempt to draw out other bidders for ATHN and to push a sale to a strategic acquirer as Elliott notes that other parties have also expressed interest in ATHN,” he said in a note to clients using Athenhealth’s stock symbol.

Elliott said it believed the offer price may also “substantially improve” with additional private diligence.

Elliott was spurned in November when it first approached Athenahealth about a possible take-private transaction. The fund was rejected again in January, when Athenahealth officials refused to engage with any discussions, according to people familiar with the matter. Athenahealth remains committed to its path to fix the business said the people, who asked not to be identified because the matter is private.

Athenahealth “has not worked for many years, is not working today and will not work in the future,” Jesse Cohn, a partner and senior portfolio manager at Elliott, wrote in a letter to the Athenahealth board of directors. “The case for going private is compelling and cannot be ignored.”

Shares of Athenahealth rose as much 26 percent Monday, to $158.24 each, the biggest intraday gain since December 2016.

Elliott, which said it owns an 8.9 percent stake in the company, has been agitating for changes for almost a year. In August, Athenahealth announced a plan to separate the role of chairman, CEO and president. It’s also pursuing $100 million in cost cutting.

Under the terms of the plan, Jonathan Bush, the company’s co-founder, was to remain on as CEO. Jeff Immelt, the former CEO of General Electric Co., was appointed chairman in January. But Athenahealth has yet to appoint a president. Elliott believes Immelt was not the best choice for chairman or to fix the company, said the people, who weren’t authorized to discuss the matter publicly.

The pace of change has frustrated Elliott, which believes the best way forward is to sell the company to a rival or to go private, the people said. The hedge fund believes the 110 million patient records Athenahealth has in the cloud would be attractive to numerous buyers, including potentially Anthem, CVS Health Corp., UnitedHealth Group or other health-care or technology companies.

“Even a cursory review of the company’s public track record leads to the conclusion that the business and its shareholders have been deprived of significant value due to the company’s execution failures,” the letter said.

Elliott has a history of bidding on companies to draw out other potential buyers. It has also acquired companies itself, including most recently Gigamon Inc. in October for $1.5 billion. Gigamon makes networking traffic switches for data centers.

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