I generally don’t agree with some of the reasons I’ve seen opposing this deal, with some reasons bordering on emotional rather than rational. I’ve been in since $17 last year and have studied LVGO extensively, but my counter-points are focused on the deal, not the company. So I’m going to lay out my rational for at least holding for a few days:
10% premium is too low: Ok, everyone and their grandmother knew that LVGO had a stretched valuation. Last Tuesday, the price was $111 and then, 5 business days later, proceeded to hit a high of $150 yesterday! The 10% premium argument is about perspective, and both companies most likely agreed that $150 was not LVGO’s fair value. If you compared merger price to even last week’s $111, the premium approaches 50%. Now I don’t know what they decided the fair value of Livongo was, but I’d like to believe they agreed it was in the low-$100s. If this deal was announced with the same price last Tuesday, we would’ve been generally happy. I’m good with the price.
Management “giving up” while they’re doing so well: I disagree with this reasoning, mainly because I view this as a “goal of helping people trumps independence” merger. In other words, even if your company is doing extremely well financially, if your vision is to cure/manage the most pressing chronic conditions and someone gives you the opportunity to accelerate it, why wouldn’t you take it if you actually believe in managing chronic conditions? My example is Instagram and Facebook. Instagram was well on their way to being a social media powerhouse, growing something like 1700% week-over-week, but they agreed to be acquired by Facebook because 1) FB had the resources to get them to where they wanted to go WAYYY quicker and 2) Facebook would’ve competed with them if they said no, which would’ve been a bloodbath.
Given that Livongo had a much more altruist vision than Instagram, it makes sense that they’ll do whatever it takes to help people . TDOC also saw that the market for applied health management was ripe with opportunity, so they were either going to build or acquire. Rather than fight at the expense of the people Livongo was trying to help, wouldn’t it be easier to take TDOC’s tremendous resources and client base and reach your goal faster, assuming your goal is to help people?
TDOC’s management concerns: Fair point. It’s subjective, so no argument from me.
Investment thesis has changed and has created confusion: Yes, the these has changed dramatically! As Bear said, this is not the company I invested in, but that is true for literally every merger and acquisition. Speculation is defined by how unclear you are about the companies prospects. No, I don’t know what growth will be like, but unless TDOC’s management decides to go absolutely insane, I can’t see a possible reason why growth would be worse than their blended average. This is a very different company, but the opportunity for TDOC and LVGO to completely dominate not just applied health management, but the ENTIRETY of telemedicine excites me.
My money can be better utilized in another stock: Another fair point. For people new to this board, I think its important to point out that when Saul and others leave a stock, they don’t necessarily expect it to go down, they just think other companies are going to do better. Prime examples are Shopify and Twilio. If I recall correctly, Saul exited Shopify in the $200 or $300’s, while he exited Twilio at ~$100. Well, both have gone on to have tremendous returns, but the stocks he left SHOP and TWLO for have done even better. The stocks that are “abandoned” on this board can still do extremely well and beat the market by a large margin, but your allocation depends on how aggressive you want to be.
There are probably other points that I disagreed or agreed with, but I don’t remember them at the moment. I’m definitely in a holding pattern until I learn more, but I see this merger as a positive. A TDOC/LVGO company is going to be an undisputed powerhouse in telemedicine and will be firmly in-charge of the industry’s penetration in our everyday lives. That’s what I invest in, companies that have enough power and influence to dictate where their industry goes, and this industry happens to be a medium-to-long term behemoth. I’ll probably trim a bit because I don’t want 15% of my portfolio in TDOC, but this is still a long-term hold.
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