- Shares at £18.08 versus £19.25 agreed takeout price
- Markets nervous that deal will fall through
- EMIS could face 24% share price slump if that happens, say analysts
Nearly nine months after agreeing a £1.2 billion takeover, shares in healthcare IT supplier EMIS (EMIS:AIM) are changing hands at a sizeable discount to that deal. Falling 3.5% in early trade on Tuesday (21 Mar), it leaves the stock at £18.08, more than £1 below the £19.25 per share that $445 billion US healthcare firm UnitedHealth (UNH:NYSE) said it was happy to pay.
Normally, when a company agrees to be bought out, its share price will move to match the buyout price as the completion date closes in. Any gap can be read as market concerns that the deal will, for whatever reason, fall through.
COMPETITION CONCERNS
Which brings us back to EMIS. The Competition and Markets Authority has identified potential threats to competition in its phase one investigation into UnitedHealth’s proposed acquisition of EMIS. The primary concern is that EMIS could restrict integrations around prescriptions and data analytics beyond Optum, UnitedHealth’s UK subsidiary.
Solutions require integrations with primary care electronic patient records, where EMIS holds a market share estimated at over 50% through its EMIS Web platform, according to Canaccord Genuity. At present, EMIS solutions integrate with third-party systems, but doing so in future would be seeding business to rivals of Optum, leaving UnitedHealth in a tricky position.
‘We suspect UnitedHealth will offer assurances and guarantees that it will continue to support integrations with other solutions, as is the case currently,’ says Canaccord.
WHAT THE MARKET IS SAYING
The share price trend is telling investors there a heightened risk of the deal collapsing, and if so, that could spell trouble for EMIS’ market valuation.
Canaccord calculates that at today’s share price, EMIS is trading at an equivalent to 29 times forecast earnings for 2023, a near-30% premium to the peer group average, which it calculates at a price to earnings of roughly 22.
‘Assuming the deal is not approved and EMIS falls back in line with peers, this would imply a share price of £13.74, 24% below current levels.’
The CMA has recommended a second phase review of the acquisition, dependent on a response from UnitedHealth and EMIS. Any response is due by 24 March.
A phase two inquiry wouldn’t necessarily rule out an EMIS takeover but it may enforce stipulations that UnitedHealth simply won’t stomach. It will also drag talks out, potentially for another six months or more.
