Teladoc Health Inc. (NYSE:TDOC) will acquire rival telehealth company Livongo Health Inc. (NASDAQ:LVGO) in a cash plus stock transaction valued at approximately $18.5 billion.
Teladoc and Livongo merge to create telemedicine giant
The companies want to create a giant telemedicine company to leverage opportunities presented by the growth in demand for telehealth services amid the COVID-19 pandemic. As per the terms of the proposed transaction, Teladoc will give shareholders of Livongo 0.5920 shares plus $11.33 in cash per share. After the merger transaction is finalized Teladoc is expected to own around 58% of the combined company.
Teladoc referred to the transaction as a merger of complementary companies that will deliver enhanced tech-enabled healthcare and also lower costs. The merged company will reach around 70 million US consumers with the platform expected to generate around $1.3 billion in revenues this year.
Telehealth has seen a boom as the pandemic keeps patients at home away from doctor’s clinics and hospitals. Due to the ensuing uncertainty, the trend is likely to continue as people stay away from hospitals. In May, McKinsey reported that the pandemic has caused a significant acceleration in the adoption of telehealth. The report showed that the adoption of telehealth among US consumers had surged from 11% last year to 46% this year as more people are turning to telemedicine to replace hospital visits.
Telehealth companies have had an impressive 2020
Because of the acceleration in industry growth companies like Teladoc and Livongo have seen their stocks surge 200% and 500% respectively year to date. However, the announcement was not received well by investors with the stocks dropping 19% and 11.4% respectively.
SVB Leerink’s Stephanie Davis stated that she was surprised that Livongo shares could drop following the news as the terms of the acquisition present a 10% premium to Livongo stock’s closing price on Tuesday. Davis noted that she believed that this will be a combination where folks believe there is more upside to the shares besides the 10% premium or there is investor activity selling the announcement or merger arbitration individuals being involved.