Breaking news: Veradigm may sell, merge, or seek ‘strategic alternatives’; appoints new interim CEO effective June (updated)

Breaking: Veradigm puts itself up for sale or ‘strategic alternatives’–but in the meantime replaces its interim CEO. The pre-holiday week and weekend break was undoubtedly a busy one at healthcare data systems/services Veradigm, the former Allscripts.

Sale? Merger? Something else? Crossing the wires today (Tuesday) at 7am Eastern Time US was the announcement that Veradigm is exploring “potential strategic alternatives that may include, but are not limited to, a sale, merger, strategic business combination or other transaction.” What was a puzzle was the next line in the carefully worded release: “The Company cannot assure that its exploration will result in Veradigm pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms, if at all.” The release goes on to explain that there is no timetable for “any transaction” and that it was the last word until if and when something happens.

The doubt around ‘attractive terms’ seems unwarranted, as the same release also reaffirms their 2024 guidance of annual revenue between $620 million and $635 million and adjusted EBITDA between $104 million and $113 million. As of calendar Q1 close, they had cash/equivalents on hand of $343 million, funded debt of $208 million (the principal of 2019 convertible notes), creating net cash of $135 million. 

Veradigm appears in good shape, despite their delisting from Nasdaq earlier this year due to financial reporting problems two years running (2022, 2023, and 2024 to date), created by bad software, leading to continuing violations of Nasdaq listing rules. This led to the December resignations of CEO Richard J. Poulton and CFO Leah S. Jones and their replacement for a six-month term by Dr. Shih-Yin (“Yin”) Ho, coming from the board, as CEO, and Lee Westerfield from Clearsense as CFO. At that time, the board announced a search for permanent replacements [TTA 14 Dec 2023].  

Shares trade on the ‘pink sheets’ (OTC Markets OTCPK) under MDRX closing today at $8.70, up over $1.00 from last Friday.

Interim CEO departs, interim CFO stays. A second release today announced that Dr. Ho will depart the interim CEO slot on 7 June but interim CFO Lee Westerfield will continue. Dr. Ho’s place as interim CEO will be taken by Tom Langan, Veradigm’s president and chief commercial officer (CCO), reporting directly to executive chairman Greg Garrison and the board. No interim president/COO was named. From the release, Dr. Ho will not be returning to the board or any other function with Veradigm which is a most interesting exit. During her time, the company in February acquired ScienceIO, a generative AI/LLM company to add AI capabilities, and in January bought Koha Health, which fit into their revenue cycle management functions for MSK [TTA 27 Feb]. Lee Westerfield will be continuing as interim CFO until 24 December. Another change: this release made it clear that no permanent executive appointments will be made “while the separately announced exploration of strategic alternatives is in process.”

What does this mean? This Editor projects that offers for parts or all of Veradigm’s business are in the pipeline, whether they are relisted on Nasdaq or not. In a company of this size, breadth, and apparent good health, the jobs of CEO, president, and chief commercial officer (CCO), typically two to three positions, are never collapsed into one person. In this unique situation, this eliminates one or two C-level compensation packages. Going back to December 2023, a CEO had to be temporarily slotted in as the company was still listed on Nasdaq. Leaving a vacancy would not have been acceptable. Regarding the CFO position, in a sale or other “strategic alternative to maximize shareholder value”, a CFO is more important than even a CEO in working out the financial details, which for Veradigm are more complicated than usual. 

In fact, this move could be seen as telegraphed in February. When accepting its Nasdaq delisting, Veradigm’s board adopted a limited duration stockholder rights plan that issues by means of a dividend one preferred share purchase right for each outstanding share of Company common stock to stockholders of record on the close of business on 8 March 2024. This becomes exercisable only if a person or group secures beneficial ownership of 10% or more of the outstanding shares in the next year. The rights plan is obviously designed to compensate shareholders in the event of a takeover not approved by the board (i.e. a hostile takeover) via accumulation of stock and make a sale to an unapproved buyer less attractive, though it hasn’t stemmed the filing of various shareholder class-action lawsuits. Crain’s Chicago BusinessHealthcare Innovation

Editor’s further note: It is not unknown to break up a company in order to maximize shareholder value. The parts can be worth more than the whole. GE is the most recent example. More akin to Veradigm, Cendant Corporation, in which this Editor was once part of as a manager/director in the Avis Rent A Car unit, was sold or spun off in parts in 2005-6. Once a giant in hotel, car rental, timesharing, real estate brokerage, online booking, and other parts of travel, by 2005 the primary shareholder/CEO decided that the share value was not reflective of the company value, and proceeded to sell and spin off its businesses–rather smartly before the real estate crash in 2007-8. Perhaps Veradigm does not see a way forward in running its diverse healthcare businesses even where it has a strong and currently profitable position or there is pressure from its largest shareholders to cash out. It is always worth looking at shareholders. Close to 22% of its shares are institutionally held but widely distributed among them. The largest holders are Silver Point Capital (2.29%), Tyro Capital Management (1.5%), and a host of Vanguard and DFA funds totaling under 10%. Insiders hold only 1.3%  Yahoo Finance

Our Readers should not be surprised at any one of several outcomes in the coming months.

Categories: Latest News and Opinion.

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