This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Allscripts, Eclipsys Deal: A Tough Sell?

Stocks in this article: MDRX ECLP MSY

(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.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs