Telehealth company Teladoc announced on Wednesday it would buy Livongo Health in a deal valued at $18.5 billion to meet the growing demand for virtual medical consultations induced by the coronavirus pandemic.
Shares in Teladoc (TDOC) plunged 14% to $214.52, while Livongo (LVGO) dropped 6.4% to $135.36 in early afternoon trading. Under the terms of the merger agreement, which has been unanimously approved by the Board of Directors of each company, each share of Livongo will be exchanged for 0.5920x shares of Teladoc plus a cash consideration of $11.33 for each Livongo share. That values the company at $18.5 billion based on the closing price of Teladoc shares as of Aug. 4. Upon completion of the deal, Teladoc shareholders will own about 58% and Livongo shareholders will own 42% of the combined company.
“This merger firmly establishes Teladoc Health at the forefront of the next-generation of healthcare,” said Jason Gorevic, CEO of Teladoc.
The combination of Teladoc and Livongo creates a global leader in consumer centered virtual care, the companies said. The combined company expects to generate 2020 pro forma revenue of about $1.3 billion, representing year-on-year pro forma growth of 85%. In addition, pro forma adjusted EBITDA is estimated at over $120 million in 2020. The merged company seeks to create revenue synergies of $100 million by the end of the second year following the closing of the deal, reaching $500 million on a run rate basis by 2025.
“This highly strategic combination will create the leader in consumer-centered virtual care and provides a unique opportunity to further accelerate the growth of our data-driven member platform and experience,” said Livongo Founder Glen Tullman. “By expanding the reach of Livongo’s Applied Health Signals platform and building on Teladoc’s end-to-end virtual care platform, we’ll empower more people to live better and healthier lives. This transaction will enable Livongo shareholders to benefit from long-term upside as the combined company is positioned to serve an even larger addressable market with a truly unmatched offering.”
Teladoc shares have exploded 155% so far this year as the company benefited from the growing need for online healthcare as stay-at-home mandates during the coronavirus pandemic made it difficult for patients to make doctor visits.
Despite the sharp rally, five-star analyst Richard Close at Canaccord Genuity on July 29 raised Teladoc’s price target to $255 (20% upside potential) from $195 and maintained a Buy rating on the stock.
“Accelerated adoption by providers and utilization by consumers is likely to remain robust and expected to drive notable revenue and adj-EBITDA growth going forward, with upside potential,” Close wrote in a note to investors. “Given the company’s market leading role in the rapidly expanding virtual care market, we remain buyers of the stock.”
The rest of the Street is cautiously optimistic on the stock. The Moderate Buy analyst consensus shows 11 Buy ratings versus 8 Hold ratings. The $232.63 average price target implies 10% upside potential in the shares over the coming 12 months. (See TDOC stock analysis on TipRanks)
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