US hedge fund Elliott Management offers to buy Athenahealth

[NEW YORK] US hedge fund Elliott Management, fresh off an activist shareholder triumph at Telecom Italia, proposed Monday to acquire Athenahealth for US$6.9 billion.

Elliott - which already owns 8.9 per cent of Athenahealth - is known for combative tactics, including a longstanding fight with Argentina's government after its 2001 default.

The fund announced it was adopting its approach to cull value from public companies in the health care sector, citing Athena's chronic underperformance and reluctance to engage in discussions to go private.

Athenahealth's board "will carefully review the proposal to determine the course of action that it believes is in the best interest of the Company and athenahealth shareholders," the company said Monday.

Describing its investment in Athenahealth as a "disappointing experience," Elliott signaled it still believes going private is the best option for the company.

"We believe that athenahealth has great potential with a differentiated opportunity to fundamentally change the Healthcare IT industry," Elliott partner Jesse Cohn said in a letter to the Athenahealth board.

"Unfortunately, we are faced now with the stark reality that athenahealth as a public-company investment, despite all of its promise, has not worked for many years, is not working today and will not work in the future."

Elliott said Athenahealth "refused to engage" in talks last November to go private.

The private market "is an ideal setting for athenahealth and its employees to focus on long-term strategic initiatives and pursue the Company's broader mission without the distraction of quarterly reporting."

Athenahealth shares surged 16.4 per cent.

The company provides services in medical records, mobile applications and claims processing and describes itself as a "partner" of hospital and ambulatory centers with a network of 114,000 providers and 110 million customers.

In 2017, Athenahealth had revenues of US$1.2 billion - a pittance next to larger companies such as the insurer Aetna or Express Scripts, a pharmacy benefits management company.

A note from Morningstar said there was a "significantly high probability" shareholders would back the offer, which is in cash.

Morningstar said it only "partially agreed" with Elliott's criticism of Athenahealth's leadership, citing "the entrenched nature of incumbent healthcare IT vendors and the stodgy nature of providers."

TOUGH TACTICS

Elliott last week edged out Vivendi for control over the Telecom Italia board, taking 49.84 per cent of shareholder votes compared to 47.18 per cent to the French telecom company.

That means Elliott will hold 10 seats on the new board, with Vivendi nabbing the remaining five.

Led by Paul Singer, Elliott manages US$35 billion in capital and has specialized in private technology investments.

Elliott's letter to Athenahealth included some conciliatory touches, praising chief executive Jonathan Bush and other executives for holding "extensive" and "constructive" dialogue with the firm.

The hedge fund has been known for brass-knuckles brawling in the past: it had a lengthy fight with Argentina's government over lapsed debt payments, even after multiple agreements to restructure the debt that the vast majority of creditors agreed to.

In another high-profile battle, Elliott in 2016 urged Samsung to split into two companies after unsuccessfully seeking to block a merger of two Samsung affiliates, C&T and Cheil Industries.

The merger went through after Seoul's state pension fund, a Samsung shareholder, approved it.

Samsung subsequently became embroiled in a massive corruption scandal that extended to ex-president Park Geun Hye. Elliott Management reportedly is seeking compensation from South Korea for damages connected to the C&T-Cheil vote.

AFP