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Nuance Communications Surges on 'No Brainer' Microsoft Takeover Talks

Wedbush analyst Dan Ives says a Nuance deal could be the 'first step in an increased appetite for deals in 2021' from tech giant Microsoft.

Nuance Communications  (NUAN) - Get Nuance Communications Incorporated Report shares surged the most in more than two years Monday after the artificial intelligence voice technology group agreed to a $20 billion takeover by tech giant Microsoft  (MSFT) - Get Microsoft Corporation Report.

Bloomberg first reported Sunday that Nuance is an advanced talks with Microsoft, which offered to pay $56 a share in cash for the the Burlington, Mass.-based innovator of AI-powered voice technology, a 22.8% premium to the group's Friday closing price. Once completed, the takeover will be Microsoft's second-largest deal on record, following on from its $26 billion deal for Linkedin in 2016.

The pair formed a strategic partnership in October 2019 to accelerate so-called ambient clinical intelligence, or ACI, technologies that uses AI to listen to doctor-patient conversations and automatically record them into electronic health record (EHR) systems.

"Investors have long viewed this partnership as part of a “try before you buy” strategy from Microsoft, fueling a bull thesis that included a takeout component," said SVB Leerink analyst Stephanie Davis. "Notably, when we hosted Dr. David Rhew (Microsoft's chief medical officer and VP of Healthcare) on a panel in January, he called out voice solutions as the next big innovation in digital health and identified NUAN as a clear leader in the category."

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Nuance Communications shares were marked 16.3% higher in early trading immediately following confirmation of the deal to change hands at $53.00 each. Microsoft shares, meanwhile, slipped 0.1% lower $255.63 each.

Wedbush analyst Dan Ives said Nuance is in the midst of an "unprecedented strategic turnaround" under CEO Mark Benjamin, adding Microsoft can "further integrate Nuance's advanced speech technology throughout its consumer and enterprise ecosystem over the coming years" in what he calls a "no-brainer" deal for the Redmond, Washington-based tech giant.

Nuance reported GAAP revenues of $345.8 million for the three months ending in December, the group's fiscal first quarter for the 2021 financial year, as well as a bottom line of 20 cents per share. 

Looking ahead, Nuance said it sees total revenues for the year in the region of $1.342 billion to $1.382 billion, up $15 million from its prior guidance, and full-year earnings in the range of 71 to 77 cents per share.

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