Shareholder accuses Athenahealth executives of withholding crucial information on planned sale

Athenahealth building 2
In a suit filed in the District Court in Delaware, shareholder Michael Kent said EHR company Athenahealth isn't disclosing crucial information to its shareholders about its planned sale. (athenahealth)

A shareholder has filed suit against Athenahealth, saying its executives are holding back on sharing crucial information about how they arrived at a final sale price of the company of $5.7 billion.

In November, officials announced AthenaHealth would be acquired by one of its top investors, Elliott Management, along with private equity firm Veritas Capital, for a price of $135 per share.

In a suit filed in the District Court in Delaware, shareholder Michael Kent said the EHR company has since released a proxy report with the Securities and Exchange Commission. But that proxy left out material information, causing it to be "false and misleading."

In the class action suit, Kent is seeking to block the deal and require the release of the information, in addition to damages. A spokeswoman for Athenahealth said the company does not comment on pending litigation.

RELATED: Athenahealth sold to Elliott Management and Veritas Capital for $5.7B, plans to merge with Virence Health

Details not available in the SEC filing, the suit said, include Athenahealth's financial projections, as well as analyses performed by the company’s financial advisors in connection with the proposed transaction and line items used to calculate adjusted EBITDA and adjusted operating income.

"When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed," the suit said.

The suit also alleges Athena failed to disclose whether it entered into any confidentiality agreements that contained standstill and/or “don’t ask, don’t waive” provisions that are or were preventing the counterparties from submitting superior offers to acquire the Company. 

"Without this information, stockholders may have the mistaken belief that, if these potentially interested parties wished to come forward with a superior offer, they are or were permitted to do so, when in fact they are or were contractually prohibited from doing so."

It also does not include indications of interest submitted to the company during the process leading up to the proposed transaction which the company previously said had “prices ranging in the $145 to $165 per share range.”

RELATED: Elliott Management proposes Athenahealth takeover worth almost $7B

At one time, the company was valued at nearly $7 billion after activist shareholder Elliott offered cash to take over the health IT company, a value of $160 per share. The company's shares traded above $150 for much of the summer.

After it was reported UnitedHealth and Cerner have both pulled out of the bidding process for the EHR company, the company's share price dropped into the $120's. They were trading above $130 a share on Wednesday. 

According to the announcement about the planned acquisition, Elliott and Veritas plan to combine Athenahealth with Virence Health a value-based care solution that Veritas purchased for $1 billion from GE Healthcare earlier this year. The new company will operate under the Athenahealth brand.

The deal is expected to close in the first quarter of 2019 subject to regulatory and shareholder approval.

AthenaHealth's sale left some of its customers nervous, saying the events over the last 12 to 18 months have negatively influenced the company’s ability to meet support demands. In a letter to customers, Executive Chairman Jeff Immelt said the two companies have “complementary portfolios and highly talented people,” adding that Athenahealth was “operating business as usual.”

See the text of the lawsuit below.