As Markets Tread Water, These 2 Stocks Are Seeking Big Changes

Stocks finished the week on a mixed note, with major market benchmarks closing mixed on Friday. The Dow Jones Industrial Average (^DJI 0.40%) stretched to a modest gain, but declines for the S&P 500 (^GSPC 1.02%) and Nasdaq Composite (^IXIC 2.02%) showed the ambivalence among investors about what the next couple of months will bring.

Data source: Yahoo! Finance.

Companies across the market are looking for ways to make the most of opportunities, but they also face major obstacles as well. Both Arco Platform (ARCE) and Cano Health (CANO) are looking to take dramatic action to improve the chances of success for their respective businesses. However, although shareholders liked Arco's plan, Cano's stock plunged after its announcement. Here's more on what each company is trying to do and why investors had such different reactions to the moves.

Arco looks to go private

Shares of Arco Platform moved 14% higher on Friday. The technology-platform provider for K-12 education in Latin America agreed to go private in response to a higher bid from a group of private equity investors.

Arco announced a definitive agreement under which affiliates of General Atlantic and Dragoneer Investment Group will acquire all of Arco's shares. The deal values Arco at $1.5 billion in terms of enterprise value, and Arco shareholders will receive $14 per share in cash for their stock.

Some aspects of the deal might have raised eyebrows among shareholders. Following the transaction, the holding company that owns Arco will have many of the K-12 education-platform provider's insiders as investors, including CEO Ari de Sa Cavalcante Neto and Chairman of the Board Oto Brasil de Sa Cavalcante. Certain other shareholders and employees of Arco will be eligible to roll over their shares in the merger as well.

Nevertheless, with the new deal replacing earlier offers at $11 per share and $13 per share, Arco shareholders can at least be comfortable that they held out for more money. With shares having traded above $50 in early 2020, long-term investors have to be disappointed at the final chapter of Arco's story as a publicly traded company.

Cano raises going-concern worries

The news was much worse for Cano Health, whose shares plummeted 73% on Friday. The primary care provider said that it would look for a buyer for the company, but it also raised issues about its ability to remain as a going concern.

Cano's second-quarter financial report released late Thursday showed the extent of its problems. Although revenue and membership rolls rose from year-ago levels, the company lost $271 million, driven largely by lower revenue from Medicare as well as higher third-party costs. In response, Cano sped up its efforts to leave key markets in California, New Mexico, Illinois, and Puerto Rico, while consolidating its operations in Texas and Nevada.

More broadly, Cano is looking to evaluate interest among potential buyers in a sale of the company or its assets. Yet at the same time, Cano admitted that it's out of compliance with various covenants in its debt agreements, and its remaining liquidity is insufficient to cover business expenses for the next 12 months. The company also withdrew previous guidance for 2023.

Investors clearly doubt that Cano will successfully find a buyer that will result in any significant payout to stockholders. That would mark an inauspicious exit for a company that just went public through a special purpose acquisition company (SPAC)  merger less than three years ago.