Teladoc and Livongo Slide as Investors Balk at Proposed Deal
(Bloomberg) -- Teladoc Health Inc., a U.S. supplier of virtual health care, agreed to buy Livongo Health Inc., which helps manage diabetes with connected devices, for about $18.5 billion, as the novel coronavirus pandemic spurs demand for remote medicine.
The deal will allow Teladoc to expand into management of chronic conditions and give the company access to Livongo’s glucose monitors and smart scales that it sends to the members in its programs in order to track their biometric data.
“This is the next logical step for us,” said Jason Gorevic, Teladoc’s chief executive officer. “A year ago, I wouldn’t have said that this would have happened so quickly, but things have accelerated. Consumers are flocking to virtual care.”
Once viewed primarily as a way to help rural populations better access care, companies like Teladoc have long bet that much pf health care would eventually move online. A fresh wave of upstarts, flush with Silicon Valley funding, have helped boost interest in virtual care, and with lockdowns and fears of contagion keeping many away from the doctors’ offices, the pandemic has hastened wider adoption.
Each Livongo share will be exchanged for 0.5920 shares of Teladoc and $11.33 in cash, the companies said in a statement. At $159 per share, the price is 10% above Livongo’s close on Tuesday. Both boards backed the transaction, in which Teladoc holders will own 58% of the enlarged company.
Teladoc investors appeared to take a cautious view of the proposed terms. Livongo shares were down 6.4% to $135.32 at 12:39 p.m. in New York, while Teladoc shares fell 14%.
Teladoc investors are viewing the transaction with “major skepticism,” wrote Jared Holz, a Jefferies health-care trading specialist, in a note to clients.
Shareholders question the motivation for such a significant price tag, according to Holz, when the stock has been performing well and when “barriers to entry here do not seem overly significant.”
Livongo went public a year ago with a market value of about $3.4 billion, and the stock has more than quadrupled since that time. Its gains had been especially steep in the past month, roughly doubling since the start of July through Tuesday’s close.
Livongo is best-known for its program that monitors the vital signs of people with diabetes, alerting doctors when glucose readings are out of range via a glucose monitor that it manufactures itself. It also offers coaching to help patients manage their conditions.
Its other disease management programs, including weight management, hypertension and behavioral health, also integrate connected devices.
Chronic Care Space
Teladoc is best-known for providing urgent-care services, though Gorevic said mental health and dermatology are growing more quickly than those services these days. Acquiring Livongo will help Teladoc move into the lucrative chronic care space, as well as giving it access to Livongo’s hardware.
Gorevic said there is “tremendous” opportunity to integrate those devices into other services Teladoc already offers, as well as to expand.
“We are thinking about this as holistic primary care,” he said.
Teladoc is a subscription service that charges fees to employers and insurers so that their employees and members can access doctors on its platform. Livongo also makes most of its money charging employers and insurers.
Gorevic said that the company expects to complete 10 million virtual visits this week. He also said that doctors have flocked to the platform, and that the company has signed on several thousand new physician contractors since the pandemic began.
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