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Stock Analyst Update

Just What the Doctor Ordered for Athenahealth

The company's board is considering a sale or merger, which would maximize shareholder value and draw out the firm's full potential.

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On June 6,  Athenahealth (ATHN) announced that founder Jonathan Bush is stepping down as CEO, president, and director, and furthermore, the company announced that the board is exploring a sale or merger. We are maintaining our $160 fair value estimate and no-moat rating, and we continue to believe that a sale would maximize shareholder value and draw out Athenahealth's full potential in the healthcare IT space. This announcement comes after several allegations of sexual harassment and inappropriate behavior against Bush in the past two weeks. The firm will search for a replacement CEO, and Athena chairman and former GE CEO Jeff Immelt has been appointed executive chairman. While we continue to believe that a sale is likely given Athena's position in the space and investor sentiment, the issued press release indicated that a strategic review is underway and will not necessarily result in a sale.

Elliott Management, which proposed an all-cash buyout of $6.6 billion on May 7, has been adamant in its position that Athenahealth consider a sale, and this was echoed by at least one other major shareholder, Janus Henderson Group. Given the lack of communication from Athena leadership following Elliott's original proposal, we are pleased to see that the board is engaging in this conversation, especially given that the buyout bid of $160 per share is a 45% premium to our stand-alone $110 fair value. While Bush has shaped the firm to become a material player in the competitive healthcare IT industry, a change of leadership gives us more confidence that the board will prioritize considering shareholder value with a sale.

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Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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