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$ 18.5 billion Teladoc-Livongo merger is huge step forward for digital health, analysts say

By on April 19, 2021 0

Teladoc Health Inc. and Livongo Health Inc. announced on Wednesday that they have agreed to merge in an agreement valued at $ 18.5 billion that will create a company capable of meeting a range of health needs. using virtual care.

Purchase, Teladoc TDOC based in New York,
+ 0.34%
is a pioneer in virtual health, while Livongo LVGO, based in Mountain View, Calif.,

is known for the hardware and software used to monitor and manage chronic diseases, including diabetes. Under the terms of the agreement, Livongo shareholders will receive 0.592 Teladoc share plus $ 11.33 in cash per Livongo share.

Teladoc shareholders will own around 58% of the combined entity, while Livongo shareholders will own the remaining 42%. The combination “creates a global leader in consumer-centric virtual care,” the companies said in a joint statement.

Analysts said the deal is a big step forward in promoting digital health care and comes at a timely basis amid the coronavirus pandemic, which has dramatically expanded uptake of health services. digital and remote.

“We think this merger makes perfect sense,” said David Larsen, analyst at Verity Research. “When a Livongo member contacts a health coach, we suspect that health coach in theory would like to be able to refer the member to a doctor and would like to be able to provide more in-depth care and services. for other illnesses that members may have.

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“By partnering with Teladoc, Livongo members will have access to communications with expert physicians, their own primary care physician, they will have the ability to get prescriptions written for them, and this combined platform truly delivers to the whole world a digital healthcare solution. Larsen wrote in a note to clients.

Forrester Research Senior Analyst Arielle Trzcinski agrees.

“With the addition of robust analytics through Livongo’s Applied Health Signals offering, the combined company will provide its customers with rich insights to support more efficient chronic care management, deeper customization and capabilities. more robust mental health, ”she wrote. in comment.

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And with mental health needs increasing almost daily during the pandemic, “Livongo’s MyStrength offering will provide an excellent complement to Teladoc’s existing virtual mental health care capabilities, enabling more proactive engagement with people who might otherwise suffer in silence, ”she said. wrote.

Livongo shares rose immediately after the news broke, before falling 7% early in the afternoon. Teladoc was down 14.6%, but both stocks have posted strong gains over the year to date, increasing throughout the pandemic amid expectations of growing demand for their services.

Teladocre remains up 155% year to date, while Livongo has gained 427% and the S&P 500 SPX,
+ 0.19%
gained 2.9%.

The new entity is expected to generate pro forma revenue of approximately $ 1.3 billion for 2020, representing pro forma growth of 85%.

“Livongo is a world-class innovator whom we deeply admire and who has been successful in improving the lives of people living with chronic diseases,” said Jason Gorevic, CEO of Teladoc, in a statement. “Together, we will further transform the health care experience, from preventative care to the most complex cases, bringing ‘whole person’ health to consumers and greater value for our customers and shareholders as a result.”

The deal is expected to be finalized in the fourth quarter. The combined company is expected to generate revenue synergies of $ 100 million by the end of the second year after the deal closes and reach $ 500 million on a run rate basis by 2025.

Gorevic will become CEO of the merged company, and the board of directors will include eight members of the board of directors of Teladoc and five members of the board of directors of Livongo.

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The health plans will also likely promote the deal, wrote Larsen of Verity Research. Their members will now have access to health maintenance and telehealth visits at a lower cost.

“While Amazon AMZN,
-0.08%
and other big industry entities have talked about wanting to revolutionize healthcare and reduce costs while improving value, this deal will actually achieve that goal, ”he wrote.

Given the new company’s total addressable market – the entire global population – “we don’t see how the growth of this organization is likely to slow anytime soon,” he wrote.

On separate conference calls to discuss the deal, management said they expect 30-40% organic revenue growth over the next several years. The deal price offers a premium of around 10% over Livongo’s closing share price on Tuesday and “makes sense” given that the market would have agreed to nothing less than that.

Livongo also reported second quarter results early Wednesday, showing adjusted earnings per share of 11 cents, well ahead of the FactSet consensus of 2 cents. Revenue increased 125% to $ 91.9 million, well ahead of the consensus of $ 83.4 million.

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