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Envision (EVHC) & AMSURG Merger Okayed by Shareholders

Zacks

Medical services provider, Envision Healthcare Holdings, Inc. EVHC announced that its merger deal with physician and ambulatory services provider, AmSurg Corp. AMSG was approved by shareholders of both companies at separate special meetings held on Nov 28. The companies expect to complete the merger on Dec 1, 2016. Notably, the merger has been sealed at a fixed exchange ratio of 0.334 AmSurg shares for each Envision share.

Shares of Envision Healthcare have been persistently treading lower on a year-to-date basis. The stock is down 16.75% compared with the Zacks Medical Care industry’s gain of 4.99%.

Envision Healthcare has a long-term expected growth rate of 14.96% and promises a lucrative earnings yield of 6.39%, much better than the industry average of 4.14%.

An announced by the company, in its meeting, holders of over 82% of shares voted in favor of the merger approval. Also, holders of 88% of shares of AMSURG common stock outstanding voted to approve the merger.

Post merger, Envision and AMSURG would bring together two leading, complementary healthcare companies to form one of the nation’s largest healthcare provider organizations, well positioned to help shape the future of healthcare delivery.

ENVISION HLTHCR Price

ENVISION HLTHCR Price | ENVISION HLTHCR Quote


Outcome of the Merger

This colossal tax-free merger of the two healthcare biggies is expected to create one of the largest providers of physician services in specialties including emergency, hospitalist, anesthesia, radiology and pediatric; in the U.S. Also, the combined enterprise will have an expanded customer base with respect to ambulatory surgery, post-acute care and medical transportation solutions.

Together, revenues from these companies exceeded $8.5 billion, with adjusted EBITDA of more than $1.1 billion for 12 months as of Mar 31, 2016.

On completion of the deal, the combined enterprise, to be named as Envision Healthcare Corporation, will bear a value of $15 billion and market cap of $10 billion. The new company will be co-headquartered in Nashville, TN and Greenwood Village, CO; with its common stock expected to trade on the New York Stock Exchange under the ticker symbol, EVHC.

Further, Envision shareholders will own 53% of the combined entity while AmSurg shareholders will have 47%. Per management, the new company will have 14 members on its board, with Envision and AmSurg directors sharing an equal number of seats, including the top-most authority from both the organizations.

Benefits of the Deal

In terms of financial advantage, this tie-up is expected to boost the new company’s adjusted earnings per share in 2017 and by double-digits in 2018. Management also expects to gain synergies worth $100 million within three years of closing the deal, through cost savings and increased revenues.

With respect to operational know-how, this deal is expected to create a healthcare giant with differentiated service offerings by leveraging the cross-selling opportunities of both the companies’ products. This would expand the combined corporation’s global realm manifold.

Our Take

The market for outsourced physician services is highly fragmented and predominantly served by small provider groups. Thus, the combined company will enjoy significant operational as well as financial advantage over its peers.

This will be on account of the large nationwide customer network of the new company as well as the leadership that both Envision and AmSurg enjoy in each of its sub-specialties of healthcare service offerings.

Zacks Rank & Other Key Picks

Envision currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader medical sector are IDEXX Laboratories Inc. IDXX and HMS Holdings Corp. HMSY. Notably, HMS Holdings carries a Zacks Rank #2 (Buy) while IDEXX Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX Laboratories represents a solid one-year return of almost 68.7%. The company has a long-term expected growth rate of almost 14.96%.

HMS Holdings Corp has a long-term expected growth rate of 14.26%. Notably, the company has a solid one-year return of roughly 53.8%.

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