Why Merge Healthcare Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Merge Healthcare (NASDAQ: MRGE  ) , a cloud-based software developer for the health care industry, jumped as much as 10% after issuing a press release that Michael Ferro Jr. has decided to step down as chairman and director.

So what: Merge announced that, with Ferro putting in his resignation, the company has appointed Dennis Brown as the company's new chairman, effective immediately. As Merge's largest shareholder, Ferro made sure to note in the press release that his interests are aligned with management and that he believes the current share price of Merge isn't indicative of the company's strengths and future prospects. More interestingly though, and possibly a big reason for today's move, is Ferro's comment that (emphasis mine), "I intend to explore a variety of ways to increase shareholder value, including, possibly, a going-private transaction." That heavy emphasis I added on the end of that sentence could imply a possible private takeover offer.

Now what: There's really been a lot for Merge shareholders to absorb here over the past month. Its CEO has stepped down and been replaced by former CEO Justin Dearborn; its chairman has now stepped down; and it reported significantly worse earnings than expected. While I do share Ferro's optimism, it's a bit troubling to see a cloud company in the health care space struggling to grow when it shouldn't be having any issues whatsoever with an ongoing shift to electronic medical records and hospitals' emphasis on streamlining costs. Furthermore, with so much change at the top, I'd have to think it could be a few quarters before Merge gets back on track. For now, I'm a happy camper staying on the sidelines.

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  • Report this Comment On August 27, 2013, at 10:25 AM, BernsieMonk wrote:

    Not sure why you describe Merge as a cloud-based software company. I would bet that over 80%, maybe over 90%, of their revenue is derived from traditionally installed software applications, not the cloud.

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