Hedge funder challenges athenahealth's claim that it's a cloud company, speculates Elliott Management won't buy

David Einhorn, hedge fund manager at investment firm Greenlight Capital, argued athenahealth isn't a software as a service company as it claims to be, according to Forbes.

In a July 31 letter breaking down his firm's second quarter performance, Mr. Einhorn explained its funds are down 18.3 percent since the start of 2018 and that it traded its short position in athenahealth to avoid a material loss this year.

Athenahealth posted $323.3 million in revenue for the second quarter, a 10 percent jump year-over-year. However, its stock performance since the start of the year has some analysts questioning the company. "[Athenahealth stock] opened the year in the mid $130s and surged as high as the $160s by midyear, before fading to its current price of $150," Forbes notes.

Mr. Einhorn cited an unsolicited bid from an unnamed activist investor — presumably Elliott Management  — as a key reason for the fund's troubled quarter.

In May Elliott offered a roughly $7 billion takeover bid for athenahealth, and suggested it would take the company private. Shortly after making the offer, former CEO Jonathan Bush stepped down from the company.

Former GE CEO Jeffrey Immelt, who now serves as athenahealth's executive chairman, said the company's board is weighing its options.

"This quarter, an activist forced out the CEO and convinced the company to put itself up for sale," Mr. Einhorn wrote. "Notably, the activist indicated that it would be willing to pay $160 a share and possibly much more pending due diligence. Our take is that the activist has little interest in actually buying the company, but hopes someone else does.

"The risk is that the other buyers realize athenahealth is not a SaaS company, but rather a business process outsourcer in a mature market that already cut costs to the bone last year in response to the activist," he wrote. "The prospective buyers might also waver should they conclude that many of the best employees were personally loyal to the now deposed CEO."

Mr. Einhorn has historically been critical of athenahealth and Mr. Bush, whom he referred to as an overly promotional leader, according to Forbes. In 2014, he lumped the health IT company into what he described as "a narrow group of cool kid stocks" that later became known as his "bubble basket."

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