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OK, I've taken a step back to think about the Teladoc's $TDOC proposed acquisition of Livongo $LVGO.
There are some red flags beginning to emerge. And I've gone from bullish to moderately bearish about this entire deal.
Still holding my $LVGO position for now.
Let's dive in.
There are some red flags beginning to emerge. And I've gone from bullish to moderately bearish about this entire deal.
Still holding my $LVGO position for now.
Let's dive in.
1) When first announced, things looked like a slick deal for LVGO shareholders.
Stock-&-cash deal that totaled $18.5b.
$LVGO's current market cap was $14b & it held a positive net cash position.
So at first glance, this was a ~32% premium.
Not bad! https://ir.livongo.com/news-releases/news-release-details/teladoc-health-and-livongo-merge-create-new-standard-global
Stock-&-cash deal that totaled $18.5b.
$LVGO's current market cap was $14b & it held a positive net cash position.
So at first glance, this was a ~32% premium.
Not bad! https://ir.livongo.com/news-releases/news-release-details/teladoc-health-and-livongo-merge-create-new-standard-global
2) At 5:40 this morning, I was rather excited about that premium.
But someone remind me to never again say "shoot through the roof" that early. Especially before I've had coffee!
https://twitter.com/7Innovator/status/1290960820231458817
But someone remind me to never again say "shoot through the roof" that early. Especially before I've had coffee!
https://twitter.com/7Innovator/status/1290960820231458817
3) Once I got into the nitty-gritty, the numbers didn't add up.
$LVGO shareholders would get .592 shares of $TDOC + $11.33 in cash.
Based on TDOC's closing price of $249.53, that actually amounted to only $159/LVGO share.
~10% premium. Less impressive. https://twitter.com/7Innovator/status/1290982756667789312
$LVGO shareholders would get .592 shares of $TDOC + $11.33 in cash.
Based on TDOC's closing price of $249.53, that actually amounted to only $159/LVGO share.
~10% premium. Less impressive. https://twitter.com/7Innovator/status/1290982756667789312
4) Furthermore, it brought into question where the "$18.5 billion" number came from?
@saxena_puru and I crunched the numbers & only came up with an EV (equity + debt - cash) of $15.3 billion.
I sent an email to IR, asking for confirmation for all of us. https://twitter.com/7Innovator/status/1290995189188829184
@saxena_puru and I crunched the numbers & only came up with an EV (equity + debt - cash) of $15.3 billion.
I sent an email to IR, asking for confirmation for all of us. https://twitter.com/7Innovator/status/1290995189188829184
5) Got some closure in an investor presentation that was later released, AFTER the initial announcement:
"The transaction values $LVGO at $18.5b, including
$TDOC's assumption of $550m in LVGO convertible debt and $158.98 per LVGO share in stock & cash." https://twitter.com/7Innovator/status/1290996959621386240
"The transaction values $LVGO at $18.5b, including
$TDOC's assumption of $550m in LVGO convertible debt and $158.98 per LVGO share in stock & cash." https://twitter.com/7Innovator/status/1290996959621386240
6) Which brought up even more questions!
- That still doesn't cover the $3.2b disconnect.
- Why wasn't this disclosed in the initial announcement?
- Why was $LVGO raising convertible debt 2 mos ago, assuming it was already having discussions about this potential acquisition?
- That still doesn't cover the $3.2b disconnect.
- Why wasn't this disclosed in the initial announcement?
- Why was $LVGO raising convertible debt 2 mos ago, assuming it was already having discussions about this potential acquisition?
7) And why raise debt that converts @ $75.57/ share, if you had any faith your stock would be worth double that 2 months later?
$LVGO either 1) purposely diluted shareholders for the benefit of bankers, or 2) had no idea its stock would rise so quickly. https://ir.livongo.com/news-releases/news-release-details/livongo-announces-pricing-upsized-4750-million-convertible
$LVGO either 1) purposely diluted shareholders for the benefit of bankers, or 2) had no idea its stock would rise so quickly. https://ir.livongo.com/news-releases/news-release-details/livongo-announces-pricing-upsized-4750-million-convertible
8) So that makes me gun-shy about the current price.
And if the business is growing at +125%/yr, with 94% retention & raising guidance ... why sell out for just a 10% premium?
Is $LVGO's management now less enthusiastic about its future? https://twitter.com/7Innovator/status/1290694653562556418
And if the business is growing at +125%/yr, with 94% retention & raising guidance ... why sell out for just a 10% premium?
Is $LVGO's management now less enthusiastic about its future? https://twitter.com/7Innovator/status/1290694653562556418
9) The debt was a poor capital allocation move by $LVGO.
But is $TDOC even worse?
Assuming LVGO management didn't know what its stock was worth, why wouldn't TDOC have acquired them just a few months earlier?
Why wait until the stock quintuples after 5 months to make a move?
But is $TDOC even worse?
Assuming LVGO management didn't know what its stock was worth, why wouldn't TDOC have acquired them just a few months earlier?
Why wait until the stock quintuples after 5 months to make a move?
10) So there's still a lot of questions that I don't yet have answers to.
$LVGO is my largest investment position. And I loved it being that way...until this morning.
Thank you to anyone who's made it through this Twitter rant. Please share thoughts & anything I'm missing.
$LVGO is my largest investment position. And I loved it being that way...until this morning.
Thank you to anyone who's made it through this Twitter rant. Please share thoughts & anything I'm missing.
