I had the same reaction as Saul when I woke up to this news. Well my ACTUAL reaction was like, “WHuuuuuuuuuuuuut?”
I Took Action
I just sold my entire position and spread it out most of it equally over CRWD, DDOG, and OKTA and bumped NET a little just to keep it balanced.
Why?
Frankly the valuation of the merger - the math - isn’t interesting to me. I mean TDOC went down 10% more than LVGO already, so inputs are noise today anyway, but it REALLY doesn’t matter to me because I’m not interested in the finances. It is simple: This is a major change to my investment “thesis”. Rarely have I seen such an obvious, massive shift, in one single news release.
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What kind of management team gives up on their vision while things are going so well?: Whether they got in bed together or it was a mugging, the result is the same. This “merger” is really TDOC swallowing up LVGO. A mission-oriented management (I assume) is out; either not mentioned in the news I read at all or given a token seat on the board (even if it turns out I am wrong on the details, I don’t think it matters). Livongo was helping people with their sights set on expanding that help to more people. We just learned how successful this mission is unfolding, so…they sell out?!
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Too complicated: There are too many meta-business concerns here. It is hard enough to find great companies with a clear mission and business model growing fast. I really don’t want to, or need to, mentally deal with what these outside factors mean to the core business over time. I’m just going to the sidelines…well in this case I’m leaving the game early so I don’t have to fight everyone else to get out of the parking lot.
A note as others have asked: In past acquisitions, the price was set right away. If the deal is upheld, from what I have seen it is rarely worth sticking around for the small change settled by arbitrage unless you want to keep the new shares, I guess.
This is the noise I expect to continue:
- “synergy” discussions. How long will this take to play out? The businesses and models make more sense separate to me. TDOC WILL figure out how to stitch them together and improve their business, otherwise they will have a lot of angry investors! How do these fit together…?:
- A data-driven AI platform to coach people who suffer from extremely complex chronic conditions who win customers by saving them money and win users by providing value.
- Teledoc.
…My best guess is Teledoc wants the data and device/app so if I am a Livongo user I will be able to hit a button to connect with a doctor and ask for help…? A small feature addition. Why not form a partnership and integration. Perhaps TDOC didn’t want it? Regardless the data is the real value. Livongo investors know this was their moat and this “merger” proves it in my mind. The only way to get in to this area was to buy Livongo’s moat and castle together.
BUT… why not do the Buffett-ian thing and keep management doing what they have proven they can do and grow the business. Livongo has powerful relationships with major providers and companies! This would be the other reason to buy Livongo: the customers they won were a major major undertaking. This was the other big part of their moat. Perhaps management weren’t the ones with the connections. Perhaps there was a coup and we’ll see whoever does have these connections in charge next…
…drama in a story can be fun, but not in an investment.