Owl Creek Asset Management Delivers Letter to Cano Health Board of Directors
Owl Creek Asset Management has urged Cano Health's Board of Directors to explore strategic alternatives, including a sale to a larger partner. Owning 3.745% of Cano, Owl Creek expressed concerns over the company's recent accounting issues and its need for capital to sustain growth. Citing a significant valuation gap compared to peers, Owl Creek emphasized that a strategic sale could maximize shareholder value. With a projected revenue of $2.85 to $2.90 billion for the year, Cano's trading at under 1.3x its low-end guidance raises concerns about its financial position and market competitiveness.
- Owl Creek acknowledges Cano's strong business model and management capability.
- Cano's membership and revenue growth has exceeded previous guidance, indicating operational strength.
- The company is close to achieving its 2023 targets a year early.
- Ongoing accounting issues have shaken investor confidence.
- Cano consistently trades at a significant discount compared to sector peers.
- The need for capital may force Cano to dilute equity at unattractive levels, hindering growth.
Urges Company to Actively Pursue Strategic Alternatives and Sale of the Company
NEW YORK, Aug. 22, 2022 /PRNewswire/ -- Owl Creek Asset Management, L.P. ("Owl Creek"), on behalf of its affiliated investment funds, today sent a letter to the Cano Health, Inc. ("Cano or the "Company") (NYSE: CANO) Board of Directors strongly encouraging the Company to pursue strategic alternatives by engaging with investment bankers and other advisors to pursue a sale to a strategic buyer.
The full text of the letter follows:
August 22, 2022
Dr. Marlow Hernandez
Chairman of the Board and Chief Executive Officer
Cano Health, Inc.
9725 NW 117th Avenue
Miami, Florida 33178
Dear Dr. Hernandez and other members of the Board of Directors:
I write on behalf of investment funds managed by Owl Creek Asset Management, L.P. ("Owl Creek" or "we"), which, as of August 19, 2022, own 8,685,171 shares of Cano Health, Inc., representing
While we believe in the Company's business model and management's ability to execute the post "de-SPAC" business plan, the past year's roller coaster of accounting issues has shaken our confidence. We feel that Cano's continued growth will require a larger and stronger vertically integrated partner with access to the capital needed to execute the Company's business plan. So, we were encouraged to hear on the second quarter earnings call that you are "open to considering all strategic alternatives to accelerate value creation."
We strongly encourage you to actively pursue these strategic alternatives by engaging with investment bankers and other advisors to pursue a sale of the Company to a strategic buyer.
Owl Creek participated in the private placement that took place concurrently with your de-SPAC transaction, and since then has acquired significantly more shares in the secondary market. We did so because we saw -- and continue to see -- an enormous opportunity to generate considerable economic value by delivering superior healthcare more efficiently. Your investor day quantified this opportunity as we learned that that the cohort of MA patients among the 26,000 members that joined in the first half of 2019 saw three-year medical costs decline at a
Unfortunately, Cano has consistently traded at a discount to its peers due to its SPAC heritage, its hybrid model (owned and operated medical centers along with affiliates), and heavy concentration in the South Florida market. One could argue for some discount due to one or more of these factors, but the valuation discrepancy between Cano and peers is highly punitive. Clearly the recent back and forth on the EBITDA moving from one year to the next also is not helping and will foreclose any thoughts of share sales at reasonable prices to fund growth. The best-known company in the owned and operated medical center segment, and the first to go public, Oak Street Health Inc. ("Oak Street"), has an enterprise value that is nearly 3.2 times the high end of its 2022 revenue guidance of
With the Company needing capital to compete with its peers and achieve the growth available in current and new markets, its depressed valuation leaves two choices: sacrifice growth or sell equity at highly dilutive levels. Both are unattractive options in our view.
Given the persistent and wide gap between where Cano shares trade and the valuation of comparable companies, we believe there is ample room to come to terms with a strategic buyer that maximizes value for shareholders and provides the Company a platform for future growth. The industry is ripe for consolidation with large health care companies looking to grow.
Recent transactions support this assertion and the willingness of buyers to pay a meaningful premium to where Cano's stock has traded for much of this year. For example, as recently as July, Amazon.com Inc. ("Amazon") announced that it was buying 1Life Healthcare Inc. (better known as "One Medical") for
Owl Creek invested in Cano because we saw the massive opportunity in which primary care providers can bend the medical cost curve through preventive medicine and disease management delivering better clinical care more cost effectively. Your management team has achieved strong growth in membership, medical centers, and geographic markets to date; however, we believe that maximization of the Company's long-term potential will require a strategic transaction with a well-funded entity. Such a transaction would not only result in meaningful appreciation in the current share price, but also improve patient health by delivering primary care medical service to as many people as possible.
We look forward to your response and hearing about your proactive efforts in pursuing a strategic suitor for this highly valuable and attractive asset.
Sincerely,
Jeffrey A. Altman
Owl Creek Asset Management, L.P.
About Owl Creek Asset Management, L.P.
Owl Creek Asset Management, L.P. is an investment advisory firm based in New York. It primarily employs an event-driven and fundamental value long/short investment strategy in equity and debt markets across the globe. The firm was founded in 2001 and is registered as an investment adviser with the U.S. Securities and Exchange Commission.
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SOURCE Owl Creek Asset Management, L.P.
FAQ
What did Owl Creek Asset Management propose to Cano Health on August 22, 2022?
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