Case studyTechniqueActivism and governanceDeals and M&A
An activist turns bidder when the public market has not worked
Jesse Cohn · Elliott Management's letter to the athenahealth board proposing a take-private (May 2018) · 2018
The idea
Elliott's 2018 letter to athenahealth's board shows an activist becoming a buyer. The case against the public-company record is specific: five chief financial officers in four years, a thirty percent margin target held for years against fourteen percent achieved, bookings guidance cut twice and still missed. Then the offer: 160 dollars a share, an enterprise value of about 6.9 billion, a premium of about half to the price before the stake was disclosed, financing indications from leveraged finance banks, and diligence in about three weeks. The argument that private ownership would free the company from the distraction of quarterly reporting is the founders' argument from Google's letter, made from the other side.
A take-private proposal is a complete case: the public record that failed, the price, the premium, the financing and the timetable, in that order.
When it works
Take-private analysis, premium questions, and private equity interviews on how a deal is proposed.
When it may fail
The letter is a negotiating document, and the premium looks different against different base dates, which the letter itself concedes. The company's answer is not in the catalogue.
How to use it
Reading any take-private letter, extract the five elements: record, price, premium measured against which date, financing, timetable. Then check the premium against the pre-announcement price rather than the current one, because the activist's own stake moved the latter.
Where it came from
Letter Elliott Management's letter to the athenahealth board proposing a take-private (May 2018) · Jesse Cohn
What the source says. Elliott lists five CFOs in four years, a 30 percent margin target against 14 percent achieved, and guidance cut twice and missed; the $160 offer implies about $6.9 billion of enterprise value, a 27 percent premium to the current price and about 50 percent to the pre-13D price, with financing indications and three weeks of diligence.
Competing perspectives
Argues against
Refuse quarterly guidance, keep control, and tell investors they are betting on the teamA founder-controlled company should say what control is for and what investors give up; the 2004 letter is the template for saying it plainly.
Connected ideas
Says something similar
A management buyout puts the seller on both sides of the tableIn a management buyout the insider is the buyer, so the board's job is to make the market, not take the offer.
Concepts
Put it to work on L3VLUP
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