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Why Evolent Health Blasted 7% Higher on Thursday

By Eric Volkman – Sep 30, 2021 at 7:04PM

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Swirling buyout rumors continue to bring the bulls to the healthcare stock.

What happened

For the second straight day, Evolent Health (EVH 0.18%) stock saw a notable uptick Thursday. The shares rose to close more than 7% higher. This followed a 9% advance the previous day. It's obvious that investors are increasingly convinced hot rumors of a buyout will soon be realized.

So what

Wednesday morning, Bloomberg published a story stating that big pharmacy-chain operator Walgreens Boots Alliance (WBA 0.61%) is in talks with Evolent to buy its healthcare industry peer. Citing "people familiar with the matter," Bloomberg pointed out that Evolent is experiencing pressure from activist investor Engaged Capital to consider a sale, among other "value creation" measures.

Stethoscope atop $100 bills and pennies.

Image source: Getty Images.

Neither Evolent nor Walgreens has yet commented on the story. Bloomberg didn't speculate as to how much the latter might be willing to pay in a buyout deal.

Engaged Capital bought a nearly 10% stake in Evolent in August 2020. Within several months, the two companies had agreed to a set of changes, which included the appointment of a new member of Evolent's board of directors and the formation of a strategy committee consisting of board members.

That committee was tasked with making "recommendations to the Board with respect to value creation initiatives, including through improvements to the Company's operations, financial performance (including cost reduction) and overall business strategy and direction."

Now what

Like most activist investors, Engaged Capital can be rather pushy when it comes to lifting the value of its investments -- particularly when it comes to potential buyouts. This is likely why investors are placing bets that a deal for Evolent can be reached. That's also potentially good news for Walgreens: If it acquires Evolent, it could benefit from effectively utilizing its new asset's IT healthcare platform.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Evolent Health Stock Quote
Evolent Health
$27.19 (0.18%) $0.05
Walgreens Boots Alliance Stock Quote
Walgreens Boots Alliance
$40.90 (0.61%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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