HealthSpring Inc.
(NYSE:HS) shares moved up marginally today after the Clinton Group
disclosed a 5.05% stake in the company, expressed their concerns over
the company's valuation and recommended ways in which the company could
better structure their balance sheet to unlock value for shareholders.
The activist hedge fund
sent a letter
to the company's Chairman and CEO on June 15th expressing its support
of the management team and view of the company as an attractive
long-term investment. The letter also noted that HS' stock price has
retreated to levels below that of its February 2006 IPO and is
currently undervalued.
Consequently, the Clinton Group
suggested that the company institute a leveraged recapitalization and a
Dutch tender offer in the $22 to $23 per share range for 30% of the
company's outstanding shares in order to better optimize their balance
sheet and take advantage of the appealing debt financing markets in an
accretive transaction. The hedge fund estimates that this accretion
would amount to 13.8% and translate to a post-leveraging share price of
$23.42.
The Clinton Group also offered to help the company
explore strategic alternatives, which could include a potential
privatization in which he would participate. The investment group has a
private equity wing that it indicated would be interested in such a
transaction. One would assume that any such transaction would take
place not only at value ($23), but also at a premium to this value that
could reach as high as $28 per share or higher.
So, what is the
stock worth? Well, based on peer multiples (TEV-EBITDA and PE), the
company is trading at a substantial discount. The company is currently
trading at 14.9x 2007 earnings while its peers are trading at 16x and
its IPO was priced at 19.5x. A similar disconnect is seen when looking
at projected 2008 earnings. Clearly there is an issue here with the
company's valuation, which should stand between $22 and $23 at the very
least.
Combined, these factors make HealthSpring a stock
worth watching!
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