Monday, March 01, 2010

Wall Street

My friend, Mike Cannavo, The One and Only PACSMan, submits this piece concerning Merge's offer to buy AMICAS.  I couldn't have possibly said it better.  It should also appear shortly in Mike's blog,
Back when I was in my early 30’s, single, and living la vida loca, I had these grandiose ideas of making a few investments, riding out the market for few years-buy low, sell high- and voila, the good life comes my way in the form of a lot of money. I’d be retired and enjoying life before age 50... Now that I’m over 50 I’m working more and making less now than ever before and what I get to “invest” is in a glass jar in the corner of my room- loose change- my “vacation fund”. Of course two kids, one ex-wife, a mortgage from hell and various other setbacks haven’t helped any but that’s just the American way.

Around the same time as I held onto my dreams the movie “Wall Street” came out. The movie starred Michael Douglas as Gordon Gecko, an extremely successful (but ruthless and greedy) broker who takes a young and naïve Bud Fox (Charlie Sheen) under his wing and explains his philosophy that "Greed is Good", despite it being one of the seven deadly sins. Taking the advice and working closely with Gekko, Fox soon finds himself swept into a world of "yuppies", shady business deals, the "good life", fast money, and fast women; something which is at odds with his family including his estranged father and the blue-collared way Fox was brought up. It’s all about “bagging the elephant”- getting a shot at the big-money brokers and learning how to make the big bucks.

I’ve been watching this “Wall Street scenario” develop with Merge Healthcare’s recent offer to buy AMICAS. At first I was majorly pi$$ed off at AMICAS- how can you let theses guys even make an offer when you have one on the table already?- but then I realized that they have effectively been rendered impotent by rules that are meant to protect the AMICAS stockholders. It’s all about getting the most return on investment. Does that protect the company? No. Truth be known the only thing it guarantees is the possible demise not just of AMICAS but of Merge as well. But as Bruce Hornsby once sang “That’s just the way it is….some things will never change”

Allowing a company like Merge that has a net worth of $137M (and dropping- as of this writing) to go in debt up to its ears spending $250M to buy another company is just obscene. But again, it’s the American way…Listen to Gecko address the stockholders at Teldar Paper in the movie Wall Street:

Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated. In the last seven deals that I've been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much.
Sound familiar? It could be just about any company…

So who is greedy here? Merge? Not really- they are just playing the game and doing it exceptionally well at that. Kudos to Merge here. At 7:50 a.m. today the headlines came across the PR Newswire “AMICAS Board of Directors Determines Updated Proposal From Merge Healthcare Is a Superior Proposal” (Sigh).

So it’s all over except the fat lady singing. Now Thoma Bravo has the right to make a counteroffer but will they? There is a lot of room between the $5.35 they offered and $6.05 Merge has offered- 13% to be exact. Yet the smart money who own AMICAS stock have already cashed their stocks, taking the $5.85, $5.90, and as of this writing $5.99 being offered for their shares of AMICAS in the event that the deal with Merge somehow falls through or Morgan Stanley finally wakes up. After all, what’s a nickel or dime in the grand scheme of things- and it sure beats the hell out of $5.35…

So for all intents and purposes, unless Thoma Bravo ponies up to the bar and matches the Merge offer, AMICAS will become part of Merge. Can that happen? Yes. Will it happen? Who knows? Unless it does though AMICAS, or at least AMICAS as we now know it, is gone. My friend the Dalai invited me up to Columbia to sit Shiva with him and I just may go. Not only do friends need to be with friends in times like these, but his wife Jane is an incredible cook and wonderful person as well and I love being with them both.

Am I mad at AMICAS? I was before but I also understand that this is pretty much out of their control so apologies to those in management who had to endure what may have seemed as my misguided anger. It’s just that Sam and I both stuck our necks out to here trying to save a company that we both felt was worth saving yet not realizing that the lamb had already been brought to the table as the sacrificial offering. The Dalai even made a post in AMICAS’ Yahoo Finance message board titled “Don’t Do It’ yet the first responses back pretty much summed it all up. “One way to keep your patients from SUFFERING would be for Thomas Bravo to match Merge's offer. Yes, this is all about money. As I mentioned before I could care less who buys this company!” The next post was equally adamant “Who ever pays the most will win the day. Now if Bravo was a publicly traded company and offered in share, there may be some consideration for future growth etc. but none of that is a factor here.. Bravo better up the bid or they lose the company.. As simple as that..”

Yet one more quote from the movie Wall Street- “The main thing about money, Bud, is that it makes you do things you don't want to do.” I’m not Jewish but like the Dalai but he and I might both smear some blood on our door posts hoping whatever wrath God (or the stockholders) take on the company after this deal is done spares both our souls…

If I were Morgan Stanley I’d also do a lot better due diligence than they obviously have. Last time I checked $200M wasn’t peanuts although the feds have bailed out the banks before so I have no doubt they will again- using our money, of course. It, too, is the American way….

So what is wrong with Merge- or any other company in the PACS marketplace for that matter- buying AMICAS? All we need to do is listen to the words of George Santayana who said “Those who cannot remember the past are condemned to repeat it.” Look to the past as to what can- and probably will- go wrong here…So much can go wrong- and so few companies are prepared to deal with it, especially a company the size (and income) of Merge. And while sales were up in a down industry the past two quarters the company still managed to lose $3M. They are not alone either as everyone in this industry is struggling but introducing one solution….after another…and another is not the answer in my book.….So Morgan Stanley- please cover your tails and call me. The first hour is free and with $200M on the line how can you afford not to call?

Merge investors also stand to lose as well but then maybe that’s why Merge stock has tanked from $2.46 on February 22nd to under $2.00 today. Memories of May 12, 2008 aren’t that long ago and this is a move that redefines risky for any company in this market…In a way it’s a shame too because Merge has had a Phoenix-like revival of late. It will probably never get anywhere close to the $26.00 days it enjoyed just four short years ago, but $2.00 is much better that $0.29 too. And despite my having issues with those at the top in the past who seemed to lookout for themselves more than the company - not with those who work there or those in control today- I do love rooting for the underdog, something Merge has been the past few years. I also honestly never thought Merge would make it this long but they had a great PR and marketing team behind them pumping them up every chance they got. They played it perfectly and still are. Unfortunately this play may indeed be their undoing. Only time will tell.

Santayana also said “Injustice in this world is not something comparative; the wrong is deep, clear, and absolute in each private fate.” This just seems so wrong, but how can something so wrong happen? Maybe it’s time for me to re-read Rabbi Kushner’s book “When Bad Things Happen to Good People” or balance it out from the Christian perspective with Dr James Dobson’s (Holding onto your faith even) “When God Doesn’t Make Sense”. There has to be an answer somewhere.

Three years after "Wall Street" premiered, another movie appeared that has become one of my all time favorites even though it’s sappy as all get out. It, too, featured a ruthless businessman who specializes in taking over companies and then selling them off piece by piece. The guy meets a gal who has a rather unusual occupation yet refuses to compromise her values. Edward Louis, played by Richard Gere, said it best to Vivian, played by Julia Roberts “You and I are such similar creatures Vivian. We both screw people for money. “. In the end it is Vivian who wins out by holding fast to her dream. “I want the fairy tale”, she says, and in the process changes Edward from a man who was about to dismantle and sell off yet another company piece by piece as he had done in the past to a man who is shown another way of being - taking time off and enjoying life - and working. He wants to create things rather than just making money. “Mr. Lewis and I are going to build ships together, great big ships.” Gere tells Philips, one of Edward’s handlers. Of course Philips, who is ONLY in this for the money, goes ballistic on both Edward and then later Vivian for the impact she had on him, leading to his ultimate demise with Edward.

Contrary to what the AMICAS stockholders might think or feel there is more to this deal than just money. Thousands of AMICAS users are going to be impacted as well. The same can be said for Merge users. The same can be said for the entire PACS industry. Think this completely through. Please. Think.

In my opinion, and this is just my opinion, the deal with Bravo would have allowed AMICAS to mature as a company and made the company more money in the long run, getting it out of the public eye and allowing it to focus where it needs to focus. The deal with Merge will only exacerbate any problems AMICAS has today and will do the same for Merge as well. It’s not just about the buck. It’s about so much more…

So the vote happens on March 4th. I hope I am contacted before then by Morgan Stanly, by both AMICAS and Merge investors, by someone, anyone who wants to know just what they are in store for. But in the absence of that the Dalai and I can both hold our heads up high saying that we tried.

Wall Street had another good quote that is something that everyone involved in this deal needs to think about- "Man stares into the abyss, and there's nothing staring back at him. That's when man finds his character. And that's what keeps him out of the abyss." We’ll see where everyone’s true character is at the end of this week….


Had the shareholders considered Thoma Bravo's slightly lower price, it might have saved the "soul" of AMICAS from the oblivion of Merge.  I guess it's easy for me to say, but how many AMICAS shareholders owned more than 1000 shares?  Merge's price gets said shareholder $6,050, minus commission.  Thoma Bravo would pay that same fellow $5,350.  $700 is apparently the price put on the soul of AMICAS, and the soul of the investors as well.  
I have my own movie quote for the AMICAS shareholders, from Star Trek III, the Search for Spock:

Sarek:  "Kirk, I thank you. What you have done?"
Kirk:  "
What I've done, I had to do."
Sarek:  "
But at what cost? Your ship, your son."
Kirk:  "
If I hadn't tried, the cost would have been my soul."


Anonymous said...

It's somewhat obscene that the people most most affected by the proposed Merge buyout of AMICAS, the customers of Merge and AMICAS, have the least say. Should the deal go through, AMICAS customers will have to hope that Merge will continue to support them. Merge customers (pre-existing and new from AMICAS) face the prospect of relying on the support of a company paying off a massive debt. They'll have to cut spending from somewhere...

Anonymous said...

Maybe the buyout allows Merge to trun the corner to better success? Maybe Merge keeps the Amicas team intact as much as possible and cleans out some of their own? Maybe the Merge team that has grown sales the past few quarters is getting sharper and better and able to make this actually work? Perhaps this deal might actually be better? My point is that Merge is not going to spend what they are and just tank this thing. You have no idea what their plans are. Tehy may see Amicas as an acquisition that allows them to get rid of alot of under performing product lines and sell one unified group of products, though can you really say that about Amicas either?

Anonymous said...

The difference between hitting 6 numbers in the lottery and 3 is significant. This deal is a two number loser.
Keep AMICAS team intact and clean out their own? You have obviously never seen how things work. Many good AMICAS people will be on the street while some of the mediocrity within Merge will survive. Yes, sales HAVE grown but net margins are down $3M the past two quarters and last time I checked you don't make money by losing money.
I never said or implied Merge would tank AMICAS, just that they should know better after purchasing e-Med and seeing what that did to their business. And Morgan Stanley needs to know what is in store for them too too. One post in the message boards said the interest on this $200M bridge loan is $6.5M/quarter. That's one helluva nut to manage.
Lastly, if Merge had underperforming groups of products they can get rid of them a lot cheaper than spending #250M to do it. As for unified products, the company is all over the board product-wise with no real focus at all. That is yet another concern. But it is what it is and I wish both companies well. They- and the marketplace- all have my prayers.


Anonymous said...

Merge has a history of buying cheap companies, stripping them, not putting any money in them. That is why there stock is running down: there is no there there. It is a group of VCs who want to flip their investment.

Anonymous said...

I believe the PACSMAN said it best, at the end of the day, there will be a ton of AMICAS employees on the street.

I know that the main concern is the plight of the customers here, but lets face facts, most of those incredibly improved support members that AMICAS brought on in the last two years to address our customer concerns of inadequate support will be unemployed and we will be talking to Rajesh in India who does not care nor understand our concerns again.

Bravo Amicas, Bravo.

Premier Imaging Informatics said...

The quote form PACSMAN's post:

“One way to keep your patients from SUFFERING would be for Thomas Bravo to match Merge's offer.

Should read, "One way to keep your patients from suffering is to partner with an imaging informatics company who is large and stable and wont succumb to minor fluctuations in the markets."

The price might be higher, but there tends to be more security that your products and support teams wont become obsolete in a week.

The heck with the Gordon Geckos of the world!