Elliott Settles With Advisory Board as Strategic Review Continues
Elliott Management's Paul Singer

Advisory Board (ABCO) on Friday reached a settlement with activist investor Elliott Management's Paul Singer that ends the threat of a director battle—for now—as the healthcare technology and consulting firm continues to explore strategic alternatives, such as a sale.

As part of the deal, Elliott Management, which owns an 8.3% stake, agreed not to launch a director-election proxy fight for a period of time and the Advisory Board signed a nondisclosure agreement. In a securities filing, Elliott said it may potentially participate in a "strategic transaction" that Advisory Board might consider, which suggests that the activist investor is seriously thinking about trying to buy all or parts of the business.

An acquisition by Elliott of Advisory Board is a real possibility. Richard Brand, a partner at Cadwalader, recently told participants at a "future of shareholder activism" event hosted by Reuters that he expects Elliott Management to expand into acquisitions.

"We're going to see more of a convergence between the activist style of investing and private equity style of investing," Brand said. "You are going to see activist hedge funds buying more companies, that's the natural next step. Elliott ... is offering to buy companies. Carl Icahn is buying companies."

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Under pressure from Elliott, which launched its campaign in January, Advisory Board earlier this month announced it had retained Goldman Sachs and Allen & Co. to explore alternatives. Strategic options are likely to include consideration of transactions with private equity players as well as a potential break up of its healthcare and higher education business.  

People familiar with the situation note that private equity players have a lot of capacity to make acquisitions in the healthcare IT space. In addition, there has been a lot of M&A in the sector lately.

And Elliott could be pressuring two public companies to combine. One company that analysts contend could be interested in buying Advisory Board's healthcare business, which represents about 80% of the company, is Cognizant Technology Solutions (CTSH) . The Teaneck, N.J.-based business has been under pressure in recent months by Elliott Management to take on more leverage to help fund research and M&A. 

The settlement comes less than a week before a March 9 deadline for shareholders to nominate dissident director candidates. A director-election contest was a real possibility and could still be one next year if no sale is forthcoming. The insurgent fund has launched 117 campaigns, including 14 proxy contests since 1994.  

Action Alerts PLUS, which Cramer manages as a charitable trust, has no positions in the stocks mentioned.

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