There were only two options

There were only two options

In news that will send shockwaves through the digital health world Teladoc and Livongo this morning announced a merger which values the company at an incredible $18.5 Billion. Per the Teladoc press release:

“Teladoc Health (TDOC), the global leader in virtual care, and Livongo (LVGO), the leading Applied Health Signals company – today announced that they have entered into a definitive merger agreement. This merger represents a transformational opportunity to improve the delivery, access and experience of healthcare for consumers around the world. The highly complementary organizations will combine to create substantial value across the healthcare ecosystem, enabling clients everywhere to offer high quality, personalized, technology-enabled longitudinal care that improves outcomes and lowers costs across the full spectrum of health.

Under the terms of the 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 Health plus cash consideration of $11.33 for each Livongo share, representing a value of $18.5 billion based on the closing price of Teladoc Health shares as of August 4, 2020. Upon completion of the merger, existing Teladoc Health shareholders will own approximately 58 percent and existing Livongo shareholders will own approximately 42 percent of the combined company.”

In pre-market trading shares of Livongo are up over 7%, while Teladoc shares are slightly down on the news. Both companies have seen their shares skyrocket during the COVID crisis, on a year to date basis shares of Teladoc are up almost 200% while shares of Livongo are up over twice that an astonishing 445%+. Here are quick initial thoughts on the deal:

1. First kudos to Livongo CEO Glen Tullman for pulling a rabbit out of the hat and being smart enough to let Teladoc run the new company. We knew from day one his goal was to sell the company and by golly he did it so congrats to Glen.

2. While no one will even bother to think about this now we wonder how Teladoc will feel about this deal a year from today. Yes there will lots of talk about how this merger will change the landscape of digital health but that’s the hype and not the reality of actually running a commercially viable and profitable company. The fact is COVID created and drove this deal and COVID hopefully will go away.

3. What does UnitedHealthcare, Onduo and OneDrop do now? Well if I’m OneDrop or Onduo its major happy dance time as thanks to this merger already over-inflated valuations just went into the stratosphere. There is no question this merger will drive more deals.

Is this deal transformational? That’s open to debate. We understand the rationale behind the deal but with so much competition and 100% at risk contracting becoming a reality we wonder will anyone make real money. But the mundane blocking and tackling doesn’t really matter at the moment as everyone will be talking about how great this is for digital health and how the future of healthcare has changed forever.

We said all along that there were just two options for Livongo either it was the greatest short of all time or they get bought by a greater fool. Frankly we aren’t surprised Livongo found a fool as over the years we have seen many overvalued deals driven not by sound business fundamentals but by being in the right place at the right time with latest shiny new object. So again congrats to Livongo, their newly rich executives and very appreciative stakeholders. Take a bow Glen you deserve one.