Urges Company to Actively Pursue Strategic
Alternatives and Sale of the Company
NEW
YORK, Aug. 22, 2022 /PRNewswire/ -- Owl
Creek Asset Management, L.P. ("Owl Creek"), on behalf of its
affiliated investment funds, today sent a letter to the Cano
Health, Inc. ("Cano or the "Company") (NYSE: CANO)
Board of Directors strongly encouraging the Company to pursue
strategic alternatives by engaging with investment bankers and
other advisors to pursue a sale to a strategic buyer.
The full text of the letter follows:
August 22,
2022
Dr. Marlow
Hernandez
Chairman of the Board and Chief Executive Officer
Cano Health, Inc.
9725 NW 117th Avenue
Miami, Florida 33178
Dear Dr. Hernandez and other members of the
Board of Directors:
I write on behalf of investment funds managed by
Owl Creek Asset Management, L.P. ("Owl Creek" or "we"), which, as
of August 19, 2022, own 8,685,171
shares of Cano Health, Inc., representing 3.745% percent of the
Class A equity of the Company, to share concerns we have with the
Company's current trajectory.
While we believe in the Company's business model
and management's ability to execute the post "de-SPAC" business
plan, the past year's roller coaster of accounting issues has
shaken our confidence. We feel that Cano's continued growth will
require a larger and stronger vertically integrated partner with
access to the capital needed to execute the Company's business
plan. So, we were encouraged to hear on the second quarter
earnings call that you are "open to considering all strategic
alternatives to accelerate value creation."
We strongly encourage you to actively pursue
these strategic alternatives by engaging with investment bankers
and other advisors to pursue a sale of the Company to a strategic
buyer.
Owl Creek participated in the private placement
that took place concurrently with your de-SPAC transaction, and
since then has acquired significantly more shares in the secondary
market. We did so because we saw -- and continue to see
-- an enormous opportunity to generate considerable economic value
by delivering superior healthcare more efficiently. Your
investor day quantified this opportunity as we learned that that
the cohort of MA patients among the 26,000 members that joined in
the first half of 2019 saw three-year medical costs decline at a 3%
compounded annual rate, versus an expected 10% increase. Cano
has exceeded the guidance outlined in the March 4, 2021 investor presentation in terms of
membership, revenue, and adjusted EBITDA, even excluding the
contribution from Direct Contracting Entities ("DCE").
Including DCE, which we believe to be an enormous opportunity both
financially and strategically, Cano is close to achieving its 2023
targets a year early. We believe that these results validate
our view on the market opportunity and the Company's ability to
capture a meaningful portion of it.
Unfortunately, Cano has consistently traded at a
discount to its peers due to its SPAC heritage, its hybrid model
(owned and operated medical centers along with affiliates), and
heavy concentration in the South
Florida market. One could argue for some discount due
to one or more of these factors, but the valuation discrepancy
between Cano and peers is highly punitive. Clearly the recent
back and forth on the EBITDA moving from one year to the next also
is not helping and will foreclose any thoughts of share sales at
reasonable prices to fund growth. The best-known company in the
owned and operated medical center segment, and the first to go
public, Oak Street Health Inc. ("Oak Street"), has an enterprise
value that is nearly 3.2 times the high end of its 2022 revenue
guidance of $2.145 billion. One
of the leaders in the affiliate space, agilon health inc.
("agilon"), also has an enterprise value more than three times the
high end of its 2022 revenue guide of $2.635
billion. Despite Cano guiding to $2.85 billion to $2.90
billion of revenue for the year -- which is higher than both
Oak Street and agilon -- the Company trades at under 1.3x the low
end of the revenue guide.
With the Company needing capital to compete with
its peers and achieve the growth available in current and new
markets, its depressed valuation leaves two choices: sacrifice
growth or sell equity at highly dilutive levels. Both are
unattractive options in our view.
Given the persistent and wide gap between where
Cano shares trade and the valuation of comparable companies, we
believe there is ample room to come to terms with a strategic buyer
that maximizes value for shareholders and provides the Company a
platform for future growth. The industry is ripe for
consolidation with large health care companies looking to grow.
Recent transactions support this assertion and
the willingness of buyers to pay a meaningful premium to where
Cano's stock has traded for much of this year. For example,
as recently as July, Amazon.com Inc. ("Amazon") announced
that it was buying 1Life Healthcare Inc. (better known as "One
Medical") for $3.9 billion.
Amazon is paying well over three times this year's expected revenue
of One Medical, in line with where both Oak Street and agilon are
valued. As we know from One Medical's merger proxy filing
dated August 9, 2022, there was
interest from another company besides Amazon referred to as "Party
A" in the proxy. It is widely speculated that Party A is CVS
Health Corporation ("CVS"), which has been very vocal in its
interest in primary care-centric value-based care (VBC)
providers. In fact, CVS has stated since late last year that
they have well over $10 billion in
capital to deploy towards strategic initiatives with VBC at the top
of the list. When asked on their first quarter earnings call
on May 4, 2022, as to why they have
yet to announce a deal, CVS CFO Shawn
Guertin said, "We've evaluated a range of assets in and
around the care delivery space. I'll remind you most of these
assets aren't up for sale. And so that dialogue starts a
process." They may have started the process with One Medical,
but Amazon finished it. On their second quarter earnings call
on August 3, 2022, CVS CEO
Karen Lynch, in response to the
first question specifically referencing the One Medical deal,
stated, "we can't be in primary care without M&A." CVS
and the other managed care companies are clearly prime candidates
with which to discuss alternatives. CVS has also been named
as a suitor for Signify Health and it was reported late yesterday
that Amazon, UnitedHealth Group and Option Care Health are
interested in the home-health-services provider. If Cano had an
enterprise value equal to three times this year's expected revenue
like Oak Street Health and agilon do, or one similar to what Amazon
is paying for One Medical, that would increase the valuation by
more than $4.5 billion, equating to a
share price of approximately $14.
Owl Creek invested in Cano because we saw the
massive opportunity in which primary care providers can bend the
medical cost curve through preventive medicine and disease
management delivering better clinical care more cost
effectively. Your management team has achieved strong growth
in membership, medical centers, and geographic markets to date;
however, we believe that maximization of the Company's long-term
potential will require a strategic transaction with a well-funded
entity. Such a transaction would not only result in
meaningful appreciation in the current share price, but also
improve patient health by delivering primary care medical service
to as many people as possible.
We look forward to your response and hearing
about your proactive efforts in pursuing a strategic suitor for
this highly valuable and attractive asset.
Sincerely,
Jeffrey A.
Altman
Owl Creek Asset Management, L.P.
About Owl Creek Asset Management, L.P.
Owl Creek Asset Management, L.P. is an investment advisory firm
based in New York. It primarily employs an event-driven and
fundamental value long/short investment strategy in equity and debt
markets across the globe. The firm was founded in 2001 and is
registered as an investment adviser with the U.S. Securities and
Exchange Commission.
Media Contacts
ASC Advisors
Steve Bruce / Taylor Ingraham
1 (203) 992-1230
sbruce@ascadvisors.com / tingraham@ascadvisors.com
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SOURCE Owl Creek Asset Management, L.P.