Cano Health shares plummet after reports CVS walked away from potential acquisition

Shares of Cano Health plunged 42% by the closing bell Monday after media reports that CVS Health backed out of talks to potentially buy the primary care company.

Bloomberg reported late last month that the company, which went public via a special purpose acquisition company deal two years ago, was exploring options including a sale. CVS Health was reportedly among several potential buyers weighing bids for the Miami-based company, which is working with financial advisers, Bloomberg reported, citing people familiar with the matter. Last week, the publication reported that CVS was in "exclusive talks" to buy Cano Health amid of wave of M&A and attempted M&A from the retail drugstore giant.

Cano Health shares rose 7.3% to $9.48 on Friday, Oct. 7, following the media reports, giving the company a market value of about $4.6 billion.

Humana also is circling the company, The Wall Street Journal reported last month. The health insurance company has the right of first refusal on any sale, part of an agreement that was originally struck in 2019, according to the WSJ.

Barron's reported Monday that CVS had decided against pursuing a deal with Cano Health. A CVS spokesperson declined to comment saying the company does not respond to rumors or speculation.

There's been a frenzy of M&A activity in the past two years as major retailers like CVS, Walgreens and Amazon ramp up their focus on primary care and home-based medical services.

Amazon plans to buy primary care provider One Medical for $3.9 billion, while CVS won a bidding war to acquire home healthcare company Signify Health for $8 billion.

Walgreens invested $5.2 billion in primary care company VillageMD to become the majority owner as it looks to open hundreds of new clinics across the U.S. 

Miami-based Cano Health, a medical provider backed by billionaire Barry Sternlicht, operates value-based primary care centers and supports affiliated medical practices that specialize in primary care for seniors. The company is active in nine states including California, Florida, Texas, Illinois, Nevada and New Mexico and in Puerto Rico, according to the company's website.

The company has more than 4,000 employees and delivers care to 280,000 members, according to a recent press release.

Cano Health joined the public markets in 2020 through a $4.4 billion SPAC merger.

In March, activist investor group Third Point reportedly pushed Cano Health to put itself up for sale because the senior care facility operator's stock price has tumbled since it went public, Reuters reported. Cano Health shareholder Owl Creek Asset Management also wrote a letter to the company's board in August strongly encouraging the company to pursue "strategic alternatives by engaging with investment bankers and other advisors to pursue a sale to a strategic buyer," according to a copy of the letter shared with Fierce Healthcare.

The company was active in M&A last year to boost its Medicare, Medicaid and Affordable Care Act (ACA) exchange memberships. It bought Miami-based University Health Care for $600 million. The deal significantly expanded Cano Health's market share in Florida, growing its footprint to 13 University facilities and over 300 University staff and affiliate providers serving approximately 24,000 Medicare Advantage (MA) members.

Cano also picked up Doctor’s Medical Center for $300 million to gain its 18 medical centers located in Miami-Dade and Broward counties, with 15 of these serving memberships dominated by adult and pediatric Medicaid members. That deal added roughly 7,000 MA members, 31,000 Medicaid members and 14,000 ACA members to Cano Health’s business.

The company reported 94% revenue growth in 2021, growing from $796 million to $1.6 billion. Cano reported a net loss of $117 million in 2021, according to its full-year earnings report.

In the second quarter of this year, Cano reported its revenue doubled to $689 million.

The company is projecting 2022 revenue just south of $3 billion ($2.85 billion to $2.9 billion) and total membership to reach around 300,000.