Activist investor Pineal Capital Management has urged sweeping changes at Teladoc Health, calling for cost cuts and a potential breakup of the telehealth provider to unlock shareholder value.
In an open letter to the board, Pineal said Teladoc should authorize a share repurchase program of at least $200 million, arguing the company’s balance sheet is “under-levered”.
Teladoc’s stock has lost about 98% of its value from its pandemic high in February 2021 – a plunge the activist investor highlighted in its open letter to the company’s board as it criticized the lack of share buybacks.
The shares closed up 6% after Pineal’s letter.
A spokesperson for Teladoc said the company continues to engage proactively with its shareholders and appreciates the constructive dialogue with them.
In the letter, Pineal called for a full strategic review, including exploring a separation of Teladoc’s two core businesses – Integrated Care, which provides virtual primary care and chronic condition management services, and BetterHelp, through a sale or spin-off.
It said the current structure creates a “conglomerate discount” and that a breakup could allow each unit to be valued independently, unlocking “substantial” value for shareholders.
Teladoc’s depressed valuation leaves it vulnerable to a potential takeover, Pineal warned.
Besides the split, Pineal also pushed for cost-efficiency measures as the company shifts BetterHelp, which provides online mental health counseling services, towards an insurance-backed model.
The investor criticized the board’s past capital allocation, calling the 2020 Livongo acquisition “overvalued” and “ill-timed”.
Pineal also highlighted several growth catalysts, including favorable U.S. policy changes supporting telehealth reimbursement, the rollout of a 24/7 virtual care platform and international expansion opportunities.
“We have long viewed activist interest in Teladoc as a significant possibility given the stock’s dislocation, and while Pineal Capital’s letter doesn’t necessarily break new ground, it certainly addresses several of the same concerns we’ve highlighted for several quarters” said Leerink analyst Michael Cherny.
Source: Reuters.com