Shares of Teladoc Health (NYSE:TDOC) and Livongo Health (NASDAQ:LVGO) fell sharply on Wednesday, after the two tech-focused healthcare companies announced their plans for a merger. By the close of trading, Teladoc and Livongo's stocks were down 19% and 11.4%, respectively.
Under the terms of the deal, Livongo's shareholders will receive 0.592 shares of Teladoc plus $11.33 in cash for each Livongo share they own. As of Aug. 4, the deal valued Livongo at $18.5 billion.
The combined company is projected to generate impressive financial metrics, with pro forma revenue of roughly $1.3 billion in 2020 -- representing year over year growth of 85% -- and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of more than $120 million.
"This highly strategic combination will create the leader in consumer-centered virtual care and provides a unique opportunity to further accelerate the growth of our data-driven member platform and experience," Livongo founder and executive chairman Glen Tullman said in a press release. "By expanding the reach of Livongo's pioneering Applied Health Signals platform and building on Teladoc Health's end-to-end virtual care platform, we'll empower more people to live better and healthier lives."
Investors, however, were not impressed. Teladoc's shareholders apparently believe the virtual care leader is overpaying for Livongo, whose business does lie somewhat outside Teladoc's core telemedicine offerings. Livongo shareholders, meanwhile, probably would have preferred for the rapidly growing company to remain independent.
Nevertheless, Livongo and Teladoc's management teams remain adamant that the merger will create value for investors and customers alike. "Together, we will further transform the healthcare experience from preventive care to the most complex cases, bringing "whole person" health to consumers and greater value to our clients and shareholders as a result," Teladoc CEO Jason Gorevic said.