(Allscripts, Eclipsys merger story updated for Wednesday close of trading, merger analysis)
CHICAGO (TheStreet) -- Allscripts-Misys Healthcare Solutions (MDRX) and Eclipsys (ECLP) announced a complicated merger transaction on Wednesday morning, but the market reaction was simple: sell shares of Allscripts-Misys.
Shares of the health-care information technology stock were down just under 10% at the close on Wednesday, and the 18.6 million Allscripts-Misys shares traded on Wednesday represented a huge spike over the company's average daily volume of under one million shares.
The health care information technology space has seen its profile raised over the previous year and a half since the federal government announced a program to reimburse hospitals and doctors for making the move to the electronic records management systems sold by companies like Allscripts-Misys and Eclipsys.While these stocks have rallied on the expected boom in sales resulting from the federal stimulus, they have also declined significantly when the sales booms have not come quickly enough. The big drop in Allscripts-Misys shares on Wednesday, though, was a reflection of all the unanswered questions inherent in a complicated financial transaction. In initial reaction to the deal, analysts did not seem to doubt the long-term benefit of the transaction. Allscripts has a focus on the physician market and Eclipsys has focused on sales to hospitals and the argument can be made that bringing the two market strengths together could be, as Allscripts contends, accretive to earnings over a long-term time horizon. At a more granular health care sales and marketing level, hospital groups have been increasing their sponsorship of physician practices of late, actually paying the upfront costs associated with the migration to electronic records for physician practices with which they are aligned. The merger would insulate Allscripts from losing business that might migrate to hospital sales due to this recent trend, but it would be going too far to see this trend as a driver of a large and complicated merger. However, these health care IT stocks have been very sensitive to any shortfalls in sales, as investors had rewarded them handily in 2009 based on the federal stimulus, sending share prices ever-higher. Given the complicated nature of the transaction announced on Wednesday, analysts posed the logical question of management having a hard time keeping their eye on the "sales ball" with four to six months of merger work ahead of them. Analysts said Allscripts is going to have to begin the work of selling this deal to shareholders of Eclipsys immediately. The premium inherent in the deal -- Eclipsys shareholders were to be issued 1.2 shares of Allscripts for one share of Eclipsys -- a 19% premium based on Tuesday's closing price that was already being eroded with the big dip in Allscripts shares on Wednesday. The fact that the deal is a $1.3 billion all-stock transaction makes the road-show aspect of the deal critical to receiving approval from all shareholders.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV