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Allscripts Poison Pill Adds to Season of M&A Discontent

Stocks in this article: MDRX GGC VMC CVI

On April 27, Allscripts fired its chairman Phil Pead and three board directors resigned in protest, revealing a large management fracture just under two years after the company merged with Eclipsys in a deal to create a medical data powerhouse.

Allscripts CEO Glen Tullman said that the departures were a result of a differing vision for the company after its August 2010 merger with Eclipsys, on a call discussing earnings with analysts. While former chairman Pead came from Eclipsys, Tullman was a holdover from Allscripts. Tullman also said that the resignations of directors Catherine Burzik, Eugene Fife, a former Eclipsys board chairman, and Edward Kangas, board chairman of Tenet Healthcare (THC) and a former Eclipsys board member, didn't come as a result of a takeover bidder or large strategic changes.

On April 30, Allscripts shareholder HealthCor Partners Management called for Tullman to resign and for the company to consider all options including an outright sale, in a letter to the company.

Allscripts reported a near 70% drop in first quarter profits, signaling poor execution in its post-merger bid to take advantage of billions in government healthcare spending and an industry shift to electronic record keeping. Allscripts forecast its 2012 earnings at 74 to 80 cents a share, compared with a projection of $1.06 to $1.10 in February. First-quarter net income fell to $5.8 million, or 3 cents a share, on revenue of $364.7 million, missing estimates of $387.6 million in sales, according to estimates compiled by Bloomberg.

"A number of our clients and prospects delayed commitments as they wait for us to introduce new releases and demonstrate more robust integration," said Tullman in the company's earnings statement. "This dynamic, combined with the recent reorganization of our sales and service teams, were the primary factors that caused sales to be lower than our expectations."

Allscripts also said that its CFO Bill Davis will resign effective May to join another company in a move the company said wasn't related to its earnings.

Seven analysts downgraded Allscrpits shares on the day of its earnings and board change announcements, according to Bloomberg data. That data shows that analysts give Allscripts shares a price target of $11.35, on four buy ratings, 18 holds and two sells.

Still to be seen is whether a poison pill will dissuade hostile bidders or activists from pushing for a sale of Allscripts. On Monday, Martin Marietta said it would challenge the Delaware court ruling against its pursuit of Vulcan Materials, signaling a continued push to complete the hostile deal.

In making a $2.6 billion tender offer for CVR Energy (CVI), activist investor Carl Icahn got his first 2012 success when the refiner removed its poison pill. On Monday, Icahn's $15 a share tender was accepted after shareholders voted in favor of his hostile bid.

For more on hostile bids, see why 2012 deals hinge on Goldman Sach's idea of fairness . Also see why a kinder, gentler activist emerged in recent Nook and AOL deals with Microsoft for more on shareholder activism.

See why timing is key in biotech takeovers for more on M&A ideas.

-- Written by Antoine Gara in New York

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