They merged. Here’s how the math works.
Each LVGO share (until December when they’re removed from trading) will be worth 0.592 TDOC shares + $11.33
If TDOC is at $235 (like it is premarket) that means LVGO shares are at ~150.
If TDOC drops to $200, LVGO drops to ~129.
If TDOC goes to $300, LVGO goes to ~189.
And that’s today, or any time until LVGO shares are removed from trading, and only TDOC remains.
Clear?
Bear
Very nicely and clearly explained!
Well done!
Denny Schlesinger
Thank you Bear. I knew I was looking at it too simplistically at first glance. If it were an all cash deal then it would have been a 31% premium. But TDOCs stock makes the situation a little more fluid.
As of right now the market is punishing this news.
Mark
I’m totally lost now! LVGO is now crashing… so really not sure whether to sell or hold on!
What happens if lvgo keeps crashing, is it safer to just sell now or just hold and hope that the teladoc share price doesn’t crash either?
There is not a large risk of holding and waiting now since the deal is done. Doubtful there will be some hedge fund that comes in and challenges the price. The market may grow to like it better as I would wager analysts will come in and praise the combination trying to raise the share price of Teladoc, which commensurately increases the value to Livongo.
Nevertheless, I don’t like to wait, so out I went. Lesson learned, actually did move the market negatively when I did so. Not usually an issue. Broker usually breaks things up into tranches. I’m not Warren Buffett, but guess one need not be to have the issue. In the future use limit orders. So gave away a few points.
It will be an interesting combination, and an attempt to build out the entire virtual medical experience for General Practitioners. However, I have no doubt that Livongo sold out for what they figured was the best premium they could obtain and did not hold much back. So who am I to argue with management.
Another lesson here is that LVGO’s founder and chairman of the board has talked about this being the most important company he has founded or worked with. Inspirational, and all that. And then they go put the company up on the sales block this early in their existence as they turn profitable. One must always take what management says with a grain of salt as in the end management is a more regulated politician promoting their interests. Happily, for the companies we follow, they are also extremely talented (as Rockefeller said, God gave him the talent to make money and run a business, so he dang will is going to use it) at building the business and increasing the share price so we get to tag along.
That puts the largest cash position I have ever held at one time in the money market. Nice work if you can find it. The premium for the purchase is built in to the 140% or so run up in the last 6 to 8 weeks. Whether or not LVGO had staying power as a sole entity we will never know, but I do agree selling out like this (like say Sendgrid did to Twilio) is not a sign of strength. But lets celebrate as it is certainly not Pivotal running back to VMWare and Michael Dell for help after going public! If any here remember that fiasco (then again, even there, initially there was good money to be made after the first earnings call. Was nice in regard.)
Fool on and all!
Tinker
What happens if lvgo keeps crashing, is it safer to just sell now or just hold and hope that the teladoc share price doesn’t crash either?
The two stocks are now priced in lockstep. Read the brilliant OP by Bear!
https://discussion.fool.com/understanding-tdoc-lvgo-34581058.asp…
Denny Schlesinger
Tinker,
The market may grow to like it better as I would wager analysts will come in and praise the combination trying to raise the share price of Teladoc, which commensurately increases the value to Livongo.
I was having a lazy morning watching Seinfeld and drinking coffee and clicked to CNBC during a commercial break, and they were discussing the merger and how great it would be for the combined companies. Just watched a snippet, but it was very positive about the merger. I noticed that LVGO’s price was up, but TDOC was down, which seemed a bit odd. I wondered if this was a better deal for LVGO than TDOC. Later, I read this board, and it doesn’t seem like such a good deal for LVGO. In the short term, at least, others seem to agree, thus the declining price.
For me, the biggest concern is “Why would a visionary, committed founder give up so much control this early in the company’s growth?” For example, if Reed Hastings had closed a deal with Blockbuster, then he would have had a nice payout, and Blockbuster might still be in business, but would it have revolutionized streaming the way Netflix did? I doubt it.
I have positions in both, so I’m debating what to do. For now, they are all good choices as I have solid profits in both, even the LVGO I bought Monday.
All the best,
Raymond
Hi Bear - This is a bit too deterministic. They have not merged. They’ve agreed to merge. It’s not a done deal.
As the release says:
“The transaction is expected to close by the end of Q4 2020, subject to regulatory and Teladoc Health and Livongo shareholder approvals and other customary closing conditions.”
https://www.globenewswire.com/news-release/2020/08/05/207309…
The shares rarely trade in true lockstep. There are discounts to acknowledge the possibility that the merger falls through, either due to regulatory concerns or shareholders voting against the combination. Admittedly, it’s usually pretty close. But it can rise or fall as chances of not going forward rise or fall.
best,
dan
Thanks Dan. Yes, it’s important to point out that the LVGO shares will likely trade at a slight discount to the value of .592 TDOC shares + 11.33. (Maybe)
And it’s more important to note that the deal could still fall through. If I owned LVGO I guess I would be hoping it did, although this is now too messy for me to touch with a 10 foot pole.
Bear
Thank you Bear. That explanation of how to value LVGO helps. As obvious as it is, I hadn’t formulated it so clearly in my own mind.
But it’s interesting. It would indicate that buying LVGO right now has built in gain of about $2.00/share. I know, these are moving targets but at 9:00 AM PDT 8/5 we have these quotes TDOC $215.22 and LVGO $136.74.
But according to the math LVGO should be $138.74. What I find interesting is that I looked at the quotes again a little later and both quotes had changed, but the $2.00 spread remains within pennies. Is there an explanation for why LVGO would trail the price calculated from the TDOC quote to be maintained?
Is there an explanation for why LVGO would trail the price calculated from the TDOC quote to be maintained?
Opportunity costs.
If you buy or own LVGO today, you are likely to suffer a taxable event (in a taxable account) either later this year or next. Such might cause a STCG vs. a LTCG.
Additionally, you must find something to invest that cash amount in when the deal is done.
Also, you have NO upside beyond that $2.00 spread. Every else above that is completely reliant on TDOC (assuming the merger goes through) so that is another reason to discount. LVGO CAN’T have the stellar price appreciation it previously had (absent trading at a premium).
All else being equal, one might be better off owning TDOC than LVGO today, due to the opportunity costs associated with LVGO.
So, just to clarify… If I were to sell out my position in LVGO (currently my best performer) and put all that money in TDOC (WAY down on my best-performer list but still positive), the overall effect on my portfolio would be the same, now and for the rest of the year, correct?
The merger can become unravelled in which case “and for the rest of the year” might not apply.
Unlike most posters here, I’m bullish on the merger because I’m looking at it from a different perspective.
If I liked the companies separate, why shouldn’t I like them together?
The 125% growth rate is not sustainable, it’s the result of covid-19. Obviously insiders including the venture capitalists think this is a good deal, why would they intentionally shot themselves in the foot?
But my motivation is the larger picture. American healthcare stopped being a free market a long time ago. To summarize, the system is so convoluted that the patient has no bargaining power. Rates are set by bureaucracies, Medicare, Medicaid, insurance companies, and other large institutions. The patient is powerless. A revolt is necessary.
If you read the PR piece someone kindly posted you’ll find the core principle of Livongo and Teladoc: “Consumer-centric, single access point to a full spectrum of integrated virtual care services…” in addition to Livongo’s “lifestyle changes.” The objective is to take back control of healthcare, healthcare is too important to leave to doctors and bureaucrats. There is a wonderful play with the title Whose Life Is It Anyway? Of course doctors are the experts but it’s the patient’s life and wealth that that are in play. This resonates with my life experience more that I can say. I lived thought it for myself and for both of my parents. The patient should decide taking into consideration expert advice. This is what the merger tries to bring about, Consumer-centric, and Lifestyle changes.
Teladoc/Livongo are taking on one of the world’s most powerful cartels, the American Healthcare Industry. Bulk matters. On a patient by patient basis this revolution would be impossible but Livongo’s customers are large institution and Teladoc’s doctors are rebels with a cause.
To bring this discussion back to earth, think of it as a disruptive innovation serving a new market of people and companies who want to take back control of their healthcare.
Late last month I took some profits off TDOC and ZM. Today I bought back, at a nice discount, the TDOC shares I sold. If LVGO drops below 125 by Friday my covered calls will expire worthless. I don’t really mind this correction.
Denny Schlesinger
well said captain…
Buy LVGO or TDOC?
LVGO (close 10.8.20) = 121.40 USD
TDOC (close 10.8.20) = 193.75 USD
‘10’ shares(for example) of LVGO cost = 10*121.40 USD = 1214.10 USD
Each LVGO share (until December when they’re removed from trading) will be worth 0.592 TDOC shares + $11.33
‘10’ shares of LVGO = 5.92 shares or TDOC + 113.30 USD
5.92 shares or TDOC + 113.30 USD = 5.92 * 193.75 USD + 113.30 USD = 1260.30 USD
Conclusion: Currently it is better to buy LVGO shares than to buy TDOC shares (assuming merger will go through); for example, buying ’10’ shares of LVGO I am effectively paying 1214.10 USD to receive 1260.30 USD.
Is that correct?
Obviously the above conclusion may change as the share price of LVGO and TDOC changes; however I just wanted to check if the principles in my calculations are correct.
Initially I did not like the merger; however after gathering myself and reading more about TDOC and other informed reviews like from Bert and MeKong, I am feeling much more positive about the merger. I agree with Bear that the company is not the same - the investment Thesis has changed etc. - however from my perspective the new thesis (for the merged companies) has a different but still an attractive perspective (for all the reasons already mentioned on the many posts on this board). In essence I cannot see the companies doing worse after the merger (ok maybe in the short term as the management work on integrating LVGO - but on the long term I see only good things resulting from the synergies, tele-medicine tailwinds, and market dominance;). I am considering to add to my position (especially after the pullback in TDOC over the past few days). I asked myself whether I should buy TDOC directly or whether I should buy LVGO; according to my calculation above, based on the current share price of TDOC and LVGO, it seems wiser to buy LVGO.
Is that correct?
At the prices given, the premium is down from 10% to 3.8%
Denny Schlesinger
Correct. LVGO stock is definitely tracking TDOC, but has has been trading at between 3-4% “discount” pretty consistently since the announcement (assuming of course that both the merger and the deal as announced holds).