Cano Health plunges 42% on report CVS has walked away from pursuit

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Cano Health (NYSE:CANO) plummeted 42% on a report that CVS Health (NYSE:CVS) has decided not purse an acquisition of Cano. CVS rose 1.7%.Cano has decided to walk away at this time, according to a Dealreporter item, which cited sources familiar.

CVS is expected to look to return capital to holders, potential through an accelerated repurchase plan, which may be announced next month.

The news comes after Bloomberg earlier this month reported that CVS (CVS) was said in exclusive talks to purchase the health-care provider. The report added at the time that CVS was currently conducting due diligence on the operator of primary care facilities.

Morgan Stanley also issued a note last Monday where the firm argued that CVS should now be targeting stock buybacks over M&A.

"We see more potential integration risk under a hypothetical take-out scenario and question whether it's the foundational platform to launchpad CVS's primary care offering," Morgan Stanley analyst Ricky Goldwasser wrote last month.

Cano Health (CANO) short interest is 13%.

Wednesday's 35% plunge reversed a 32% gain on Sept. 22 after reports that reports that Humana (HUM), CVS Health (CVS) and other possible buyers were said to be circling the primary-care provider.

Cano Health at it's current price Monday is now trading below levels reached on Aug. 22, when CANO rose in sympathy after reports that home health service provider Signify Health (SGFY) was evaluating multiple potential buyout offers. CVS (CVS) agreed to buy Signify for $30.50/share, or about $8 billion early last month.

Cano Health (CANO) has not only been the subject of takeover reports, but the home health care provider has also been under pressure from activist investors. Own Creek Asset Management in August urged Cano to engage with investment bankers to pursue a sale to a strategic buyer.

Activist investor Loeb's Third Point hedge fund in March said Cano (CANO) should explore strategic alternatives, including a potential sale.

Comments

[deadhead213]

$cano definitely not worth looking at

[Equities Ghoul]

@deadhead213 you’re life is definitely not worth looking at

[Mktneutralhedger]

Deal one day no deal the other day, well same with the market: +3% one day -3% the other day. Better to get some short-dated Treasuries for the next 6 months and sleep well at night.

[The Real Cavalier]

Retail guys playing the risk arb game. Just go to Vegas. Better food and free drinks.

[Chancetaker28]

@The Real Cavalier except free drinks are slowly being phased out.

[Biologics]

I will be taking advantage of this.

[James419]

@Biologics how do you see this playing out? I bought 2k shares today based on risk to reward, but have no idea how long I should hold this position. Any thoughts would be appreciated!

[Boilermaker_KK]

This deal was likely never to occur. CVS is working to close the Signify deal and likely didn’t have the bandwidth to do two deals simultaneously and no to mention that the market did NOt like it. See shareholder comments here.

CVS should focus on Signify deal, operational improvements, debt paydown, stock buybacks and continued dividend increases.

I exited CVS position incrementally and completely north of $100 per share.

I’m playing the merger arb of CANO. Other interested parties. CVS couldn’t get comfortable with the desired price undoubtedly because, remember, Human has right of 1st refusal on any acquisition so that always makes a merger / buyout trickier and priced to perfection (or at least closer to it).

Other players will likely emerge - possible United Health, … or perhaps Humana just pulls the trigger and takes CANO out. Time will tell. One thing we know for sure, it won’t be CVS. But deal likely gets down, this space remains ripe for consolidation and many large CANO shareholders are eager to strategically exit.

[kiwicarrotcake]

Wasn't CANO a $6 + stock prior to this...

[Iron Eagle]

So are those shareholders who “walked away” from the stock and caused the price to drop more than $10 on the original news going to come back?? Haha

[kevn1111]

Good. Was too expensive.

[Value__Hunter]

Good, many better healthcare companies to buy than this.

[Kjmjuice]

Great! Just what we did not need another acquisition which I would guess we would be overpaying for. There are enough operational issues that management needs to focus on with the current businesses.

[foolmeonce....]

@Kjmjuice agree 100%...glad they walked.

[LK106218]

Too big to chew, smaller bites would be better, this one could have caused choking, the Heimlich maneuver (abdominal thrust) doesn't work on companies.

[dynx]

Good.