Health Data Firm Cerner Gains After Reaching Deal With Activist Starboard

(Bloomberg) -- Cerner Corp., the health-care data and records company, said it will increase its margin targets, buy back shares and add four new board members after reaching an agreement with the activist investment fund Starboard Value.

Along with a new $1.2 billion buyback program, Cerner plans to start paying a dividend, it said in a statement. Shares of the North Kansas City, Missouri-based company rose as much as 16 percent, the biggest intraday gain since October 2012.

“We are committed to delivering significant operating margin improvement and returning capital to our shareholders,” Cerner Chief Executive Officer Brent Shafer said in the statement.

Cerner sells medical records systems used by doctors and hospitals to keep track of patient care and bill health insurers, and last year had $5.37 billion in revenue. The stock is up 3.3 percent in the last 12 months, sharply lagging the 58 percent rise in the S&P 500 Health Care Index.

The company said it will increase its adjusted operating margin target to 22.5 percent for the fourth quarter of next year. It will also reshuffle some executive responsibilities and look for potential cost cuts.

Starboard, run by Jeffrey Smith, frequently agitates for changes at companies. It recently opposed drugmaker Bristol-Myers Squibb Co.’s takeover of Celgene Corp., then backed off from that fight after realizing it would lose. The investment firm owns about 1.2 percent of Cerner’s shares, which would make it one of the company’s top-20 holders, according to data compiled by Bloomberg.

“We are pleased to have reached this agreement with Cerner which includes a meaningful refreshment of the board, as well as important steps towards implementing operational improvement initiatives that will drive profitable growth,” Peter Feld, managing member of Starboard, said in the joint statement.

The four people joining the Cerner board are John Greisch, the former CEO of Hill-Rom Holdings Inc.; R. Halsey Wise, former CEO of MedAssets; Melinda Mount, former president of Jawbone; and George Riedel, CEO of Cloudmark. Mount and Riedel were nominated by Starboard.

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