Currently fighting a takeover offer from Elliott Management, and on the heels of damaging allegations of sexual harassment against founder Jonathan Bush, athenahealth announced this morning that it is considering “strategic alternatives,” while also announcing that Bush is stepping down as CEO, president and as a member of the company’s board, effective immediately.
The Watertown, Mass-based health IT vendor said in a press release that its Board of Directors has initiated a process to explore strategic alternatives, which includes the possibility of a sale, merger or other transaction involving the company as well as continuing as an independent company.
“In parallel to having discussions with third parties regarding a potential business combination, the athenahealth Board has initiated a search process to identify qualified CEO candidates. The Board’s strategic exploration process is designed to maximize shareholder value and better position athenahealth to capitalize on its premier healthcare technology platform,” the company stated in the press release.
athenahealth is fighting a takeover offer for $160 a share from activist firm Elliott Management. Before Wednesday's announcement, the stock was at $151 a share, about 6 percent below the offer price. Ahead of the announcement, athenahealth shares were halted. They initially rose nearly 6 percent once trading resumed, according to reporting from CNBC.
With Bush's departure, athenahealth officials said Jeff Immelt, chairman of athenahealth, has been appointed executive chairman, in order to support the company’s operations and ensure a smooth transition as the Board conducts its strategic review. In addition, Marc Levine, executive vice president, chief financial officer, chief accounting officer and treasurer, will assume greater day-to-day operational responsibilities and oversight, the company stated, and current Board member Amy Abernethy, M.D., Ph.D., will be advising the executive leadership team on data strategy within her role as a director.
Michelle Mattson-Hamilton, associate principal, ST Advisors, a strategic and financial advisory firm focused on healthcare IT, said this recent turn of events at athenahealth is not surprising given the developments over the past month.
“With Elliott aggressively pushing its acquisition bid and the recent news of Jonathan's behavior hitting the airwaves, it's a perfect storm. As the company explores alternatives, I'm sure there will be multiple financial sponsors interested in taking a look, and Cerner is a logical strategic option,” she notes, adding that Cerner has publicly stated their lack of interest in athenahealth. “The next 8 to 16 weeks, as things progress, will be very interesting.”
Mattson-Hamilton adds, "What would be more exciting would be if Apple or one of the other tech giants were to look at athenahealth in an attempt to gain access to the market," while also noting that Apple's involvement with athenahealth is "unlikely."
In a statement, Immelt said the company is approaching this process “with an open mind and a commitment to continuing to strengthen the company – including its rich data asset, platform strategy, and culture of innovation. We are fully focused on serving the best interests of our shareholders, employees and clients.”
“On behalf of the Board, I want to thank Jonathan for guiding athenahealth to this point and for building an incredible team, which is deeply focused on our clients and on driving disruptive, positive change across the healthcare industry. The Board and Jonathan agree that this change in leadership is appropriate as athenahealth turns to its next chapter,” Immelt stated.
In a statement, Bush, who co-founded the company in 1997, said, “I believe that working for something larger than yourself is the greatest thing a human can do. A family, a cause, a company, a country – these things give shape and purpose to an otherwise mechanical and brief human existence. athenahealth is a near once in a life time example of such a thing. With that lens on, it’s easy for me to see that the very things that made me useful to the company and cause in these past twenty-one years, are now exactly the things that are in the way. I cannot imagine a single organization more loaded with potential to transform healthcare.”
Lazard and Centerview Partners are acting as the company’s financial advisors, and Weil, Gotshal & Manges LLP is legal counsel to the company. A leading executive search firm has been retained to assist with the CEO search process.
Takeover Bid
As previousy reported by Healthcare Informatics, Elliott, the New York hedge fund which says it owns 8.9 percent of the company’s common stock, and is led by billionaire Paul Singer, made an all-cash takeover offer, which would value athenahealth at $6.9 billion.
In a letter sent to athenahealth’s board of directors on May 7, the investors acknowledge “how rare it is for a company to achieve the level of success realized by athenahealth,” and that “athenahealth has great potential with a differentiated opportunity to fundamentally change the healthcare IT industry.” However, the investors also criticized leadership at the electronic health record (EHR) vendor for failing to make the changes necessary “to enable it to grow as it should and to create the kind of value its shareholders deserve.”
“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,” the Elliott investors state in the letter, specifically noting the company’s problems in the areas of sales execution, service delivery, product focus, forecasting, executive turnover, capital allocation, management discipline and corporate governance.
Elliott first took a stake in the company in May last year. Since then, Bush ceded his chairmanship, the company replaced its chief financial officer and announced plans to cut its workforce by 9 percent. In February, Immelt, former CEO of GE Healthcare, was named chairman of the athenahealth board.
Further, Elliott said in the letter that athenahealth’s stock price has underperformed because the company has failed to correct a host of identifiable operational issues. “This chronic underperformance is driven by athenahealth-specific factors including poor execution, significant management turnover, inefficient allocation of resources and the loss of strategic focus,” the investors wrote in the letter.
Allegations Against Bush
A few weeks about Elliott Management’s takeover bid, the U.K.’s Daily Mail reported that Bush had assaulted his ex-wife, citing court documents the newspaper found detailing violent attacks against his ex-wife more than a decade ago. The Daily Mail, citing 2006 court documents from a custody battle in Massachusetts, said Jonathan Bush, 49, had struck Sarah Seldon in the sternum with closed fists and once gave her a black eye.
According to a Bloomberg report, Bush issued an apology after learning of the newspaper report. “I take complete responsibility for all these regrettable incidents involving my dear former wife. I have worked very hard since then to demonstrate my remorse, and today, Sarah and I have a strong, co-parenting relationship. I accept responsibility for my conduct and apologize to everyone involved,” Bush said, according to the Bloomberg report.
Earlier this week, Bloomberg also reported new allegations of questionable behavior by Bush. According to Bloomberg’s reporting, two female employees filed complaints citing “inappropriate conduct” by Bush, and one female employee referenced in public records said Bush created a “sexually hostile environment” at athenahealth.
There has been some speculation that the growing allegations against Bush, both in his personal life and his behavior at work, and the timing of the takeover bid are not coincidental.
As recently noted by Politico, a 2017 Fortune report suggests that Elliott Management may have used sophisticated, and often controversial tactics, in the past. The Fortune report suggests that the hedge fund hired private investigators to find information on takeover targets to use as leverage, for example.
“As an industry observer, Jonathan built a truly excellent company with a great vision and a very loyal employee base,” Ben Rooks, founder and principal, ST Advisors said, “I think his forced exit engineered by an 'activist investor' is a loss for the HCIT sector.” And, he noted, “I’m excited to see what he does next with his life.”
In a previous interview after the takeover bid was announced back in May, Rooks noted that athenahealth’s culture is driven by its outspoken CEO, Bush, and that impacts the company’s valuation, he said. “athena has always traded at a premium valuation, in no small part because of Jonathan. If you were to take him out of it, assuming you even could, what would that do to the company, long-term?”
Rooks also said at the time that a traditional leveraged buyout (LBO), as proposed by Elliott, would be challenging. “It’s tough to see a hostile LBO working, given athena’s culture. And Elliott has a track record of winning the fights they get into,” he says.
athenahealth's Future
Strategically, Elliott’s proposed takeover offer put the company into play, Rooks noted back in May, and it's possible other companies will show interest.
As Matton-Hamilton noted, one possibility, while unlikely, would be a tech giant like Apple buying athena. "It's a provocative thought exercise," she says. "What sort of access would Apple achieve? Could they handle the complexities and regulation? Would they ultimately fail like so many others or could this lead to significant industry changes like many hypothesize? This is a very low probability, in my opinion, but given the inroads the tech companies are attempting to make into the space, you have to imagine they will want look closely at any large opportunities like this."
When interviewed back in May, Rooks said he would urge caution to technology companies looking to jump in and buy athenahealth. "I would caution them to look at the treacherous path that all tech companies entering healthcare IT have experienced. For example, GE/IDX and Misys/Sunquest/Medic," Rooks says. [editor’s note: GE Healthcare acquired IDX Systems for $1.2 billion in 2006. IDX solutions were rebranded Centricity and GE is now exploring selling off parts of its health IT business. Misys, a U.K. software and services group, acquired Medic Computer Systems, a provider of practice management and medical record systems to physicians, in 1997 and bought Sunquest, an IT provider in the hospital market, for $404 million in 2001. The company then sold Sunquest six years later, in 2007.]
Rooks continued, “The playing field is littered with tech companies that have tried to get into healthcare, even Siemens and SMS. It’s hard.”
