LIVONGO HEALTH, INC. Item 8.01 Other Events
As previously disclosed, onAugust 5, 2020 ,Livongo Health, Inc. ("Livongo") entered into an Agreement and Plan of Merger (the "Merger Agreement") with Teladoc Health, Inc. ("Teladoc") andTempranillo Merger Sub, Inc. , a wholly-owned subsidiary of Teladoc ("Merger Subsidiary"). Upon the terms and subject to the conditions of the Merger Agreement, Merger Subsidiary will merge with and into Livongo (the "Merger"), with Livongo surviving as a wholly-owned subsidiary of Teladoc. A definitive joint proxy statement/prospectus was filed with theSecurities and Exchange Commission (the "SEC") by Teladoc onSeptember 15, 2020 , in connection with, among other things, the Merger Agreement.
Certain Litigation
As previously disclosed in the joint proxy statement/prospectus, betweenSeptember 10, 2020 andSeptember 14, 2020 , three lawsuits were filed by purported stockholders of Livongo in connection with the transactions contemplated by the Merger Agreement under the captions Kent v.Livongo Health, Inc. , et al., Case No. 1:20-cv-01213 (D. Del.), Raheja v.Livongo Health, Inc. , et al., Case No. 5:20-cv-0604 (N.D. Cal .) and Hart v.Livongo Health, Inc. , et al., Case No. 1:20-cv-1222 (D. Del.). Seven additional lawsuits were filed betweenSeptember 16, 2020 andOctober 16, 2020 by purported stockholders of Livongo in connection with the transactions contemplated by the Merger Agreement under the captions Kubus v.Livongo Health, Inc. , et al., Case No. 1:20-cv-07579 (S.D.N.Y.), Jones v.Livongo Health, Inc. , et al., Case No. 1:20-cv-04362 (E.D.N.Y.), Anthony v.Livongo Health, Inc. , et al., Case No. 1:20-cv-07706 (E.D.N.Y.), Banner v.Livongo Health, Inc. , et al., Case No. 5:20-cv-06758 (N.D. Cal .), Vea v.Livongo Health, Inc. , et al., Case No. 1:20-cv-08230 (S.D.N.Y), Ormesher v.Livongo Health Inc. , et al., 5:20-cv-07105 (N.D. Cal .) and O'Connor v.Livongo Health, Inc. , et al., Case No. 5:20-cv-07281 (N.D. Cal .). The complaints allege, among other things, that the joint proxy statement/prospectus issued in connection with the Merger omitted material information in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, rendering the preliminary proxy statement false and misleading. The complaints name as defendants Livongo and the Livongo board of directors. Certain of the complaints additionally name as defendantsChristopher Bischoff ,Sandra Fenwick ,Karen L. Daniel ,Philip D. Green ,Hemant Taneja ,Glen E. Tullman ,Zane Burke ,Tempranillo Merger Sub, Inc. and Teladoc Health, Inc. While Livongo believes that the disclosures set forth in the joint proxy statement/prospectus comply fully with all applicable law and denies the allegations in the pending actions described above, in order to moot plaintiffs' disclosure claims, avoid nuisance and possible expense and business delays, and provide additional information to its stockholders, Livongo has determined voluntarily to supplement certain disclosures in the joint proxy statement/prospectus related to plaintiffs' claims with the supplemental disclosures set forth below (the "Supplemental Disclosures"). Nothing in the Supplemental Disclosures shall be deemed an admission of the legal merit, necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, Livongo specifically denies all allegations in the various litigation matters that any additional disclosure was or is required or material. SUPPLEMENTAL DISCLOSURES This supplemental information should be read in conjunction with the joint proxy statement/prospectus, which should be read in its entirety, including the cautionary notes regarding the risks and limitations associated with relying on prospective financial information. The inclusion in this supplement to the joint proxy statement/prospectus of certain summary unaudited prospective financial information should not be regarded as an indication that any of Livongo, Teladoc or their respective affiliates, officers, directors or other representatives, or any other recipient of this information, considered, or now considers, it to be material or to be reliably predictive of actual future results, and the unaudited prospective financial information should not be relied upon as such.. To the extent defined terms are used but not defined herein, they have the meanings set forth in the joint proxy statement/prospectus. The disclosure under the heading "The Merger - Background of the Merger" on page 79 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the seventh paragraph under that heading in its entirety with the following: Also onJune 13, 2020 , Livongo's management entered into discussions with Morgan Stanley regarding the engagement of Morgan Stanley as Livongo's financial advisor to help Livongo and its board of directors assess a potential business combination with Teladoc. Livongo's management believed it was prudent to enter into discussions with a potential financial advisor at such time and selected Morgan Stanley based on its expertise in the technology and healthcare sectors, its experience in advising on complex strategic transactions, the fact that Livongo's management had familiarity with Morgan Stanley as a result of Morgan Stanley's role as a lead underwriter of the company's initial public offering, secondary offering, and convertible debt offering and the fact that Morgan Stanley had familiarity with Livongo and its business as a result of that role. The disclosure under the heading "The Merger - Background of the Merger" on page 79 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing nineteenth paragraph under that heading (such paragraph being the fourth full paragraph on page 81) in its entirety with the following: -------------------------------------------------------------------------------- BetweenJuly 9, 2020 andJuly 16, 2020 , Messrs. Tullman and Shapiro had discussions with Messrs. Gorevic and Turitz by telephone regarding the transaction, due diligence and potential transaction timelines.Mr. Shapiro and Messrs. Gorevic and Turitz tentatively agreed to work towards an announcement date in earlyAugust 2020 subject to successful completion of due diligence, reaching agreement on the terms of the Mergers (including the exchange ratio) and approval of the transaction by the Livongo board of directors and the Teladoc board of directors. The disclosure under the heading "The Merger - Background of the Merger" on page 79 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the thirty-ninth full paragraph under that heading (such paragraph being the fifth full paragraph on page 85, which paragraph continues onto page 86) in its entirety with the following: OnJuly 30, 2020 , the Livongo board of directors met by video conference. Members of Livongo's management team and representatives of Morgan Stanley, Skadden andOliver Wyman , a strategic consultant to Livongo, also attended the meeting.Mr. Tullman opened the meeting by noting that Teladoc had reported its second quarter earnings the previous day and observing that Teladoc common stock was trading up approximately 4% since the market opened. Representatives of Morgan Stanley noted that based on the closing price of Teladoc's common stock onJuly 29, 2020 , Teladoc'sJuly 26, 2020 proposal (i) implied a value per share of Livongo common stock of$131 , an exchange ratio of 0.6x and approximately 43% pro forma ownership of the combined company by Livongo's stockholders, and (ii) represented an 8% premium to theJuly 29, 2020 closing price of Livongo common stock of$121 per share and a 36.4 times multiple toWall Street consensus estimates of Livongo's next twelve month revenues. Senior management updated the Livongo board of directors on the status of due diligence. Messrs. Burke and Shapiro noted that due diligence revealed better than expected margin growth and visit data in Teladoc'sBetter Health business and suggested that Teladoc's strong international footprint could provide additional revenue synergies for the combined company. The Livongo board of directors asked questions about the implied valuations and the relative importance of premia versus pro forma ownership in the combined company and asked for an update on the calculation of estimated synergies. Representatives from Morgan Stanley confirmed that this work was ongoing with management and Teladoc and that Livongo's management and Morgan Stanley expected to be able to provide the Livongo board of directors with a better view of expected synergies byAugust 1, 2020 orAugust 2, 2020 .Mr. Tullman then updated the Livongo board of directors on the proposed governance of the combined company, noting that as Livongo's stockholders would receive Teladoc common stock representing approximately 40% of the combined company and the strategic and financial underpinnings of the potential business combination depended, in part, on the combined company's ability to deliver on its plan and generate synergies through the combination, the governance of the combined company would be an important factor in the Livongo board of directors' comfort with the potential business combination.Mr. Tullman suggested that the Livongo board of directors continue to push for representation on the combined company board roughly commensurate with the pro forma ownership of Livongo's stockholders in the combined company. The Livongo board of directors concurred andMr. Tullman agreed to keep the Livongo board of directors updated on his discussions with Teladoc on the matter.Mr. Tullman then invited representatives fromOliver Wyman , a consultant engaged by Livongo in June, 2020 in connection with Livongo's ordinary course review of the market and competitive landscape in which it operates and Livongo's strategic priorities and opportunities, to join the meeting. Representatives fromOliver Wyman presented on the competitive landscape in which Livongo operates and strategic options available to Livongo along with the risks of executing on those strategic options. The Livongo board of directors then had a detailed discussion on the various strategic options presented. The disclosure under the heading "The Merger - Background of the Merger" on page 79 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the fiftieth full paragraph under that heading (such paragraph being the third full paragraph on page 88) in its entirety with the following: Later that evening, Teladoc management and representatives of Lazard andPaul Weiss discussed a potential revised proposal that would imply a 10% premium to Livongo's then prevailing stock price (based on Teladoc's then prevailing stock price). Teladoc management determined to submit a revised proposal pursuant to which Livongo stockholders would receive per share merger consideration of 0.5920 shares of Teladoc common stock and$4.24 in cash and a special cash dividend equal to$7.09 per share (which, at the prevailing Livongo and Teladoc stock price, collectively implied that Livongo stockholders would receive approximately 42% pro forma ownership of the combined company and a value per share of Livongo common stock of$158.98 , which represented a 10% premium to the closing price per share of Livongo common stock onAugust 4, 2020 ) and the board of directors of the combined company would be expanded to 13 members, 5 of whom would be comprised of existing members of Livongo's board of directors (which composition was approximately commensurate with the implied pro forma ownership of Livongo's stockholders in the combined company, as proposed by Livongo). Later that evening on the same day,Mr. Gorevic calledMr. Tullman and discussed Teladoc's revised proposal. Representatives of Lazard, at the direction of Teladoc's management, also called representatives of Morgan Stanley and discussed Teladoc's revised proposal. The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Public Trading Comparables Analyses -Teladoc Public Company Comparables Analysis" beginning on page 110 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first paragraph under that heading in its entirety with the following:
Teladoc Public Company Comparables Analysis
Based on this analysis and upon the application of its professional judgment and
experience, Morgan Stanley also selected reference ranges of AV/CY2021E Revenue
of 14.6x - 25.4x and AV/CY2022E Revenue of 10.9x - 18.3x and applied these
ranges to estimated revenue for calendar years 2021 and 2022 based on both the
Teladoc street case and each of the Teladoc Case 1 forecasts and the Teladoc
Case 2 forecasts, as more fully described in the section entitled "The
Merger-Livongo Unaudited Financial Projections" beginning on page 122. Morgan
Stanley's analysis resulted in the following implied share prices for Teladoc
common stock.
Implied Value
Per Share
Range for
Forecast Scenario Teladoc
AV/CY2021E Revenue-Teladoc Street Case $ 200.70-$342.67
AV/CY2021E Revenue-Teladoc Case 1 forecasts $ 209.78-$357.83
AV/CY2021E Revenue-Teladoc Case 2 forecasts $ 228.20-$388.56
AV/CY2022E Revenue-Teladoc Street Case $ 186.34-$308.02
AV/CY2022E Revenue-Teladoc Case 1 forecasts $ 204.82-$337.77
AV/CY2022E Revenue-Teladoc Case 2 forecasts $ 227.47-$374.25 --------------------------------------------------------------------------------
The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Discounted Equity Value Analysis -Livongo Discounted Equity Value Analysis" beginning on page 111 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first paragraph under that heading in its entirety with the following:
Morgan Stanley calculated ranges of implied equity values per share of Livongo common stock as ofAugust 4, 2020 . To calculate the discounted equity value per share of Livongo common stock, Morgan Stanley used calendar year 2022 estimated revenue based on each of the Livongo street case and the Livongo management projections. For each scenario, Morgan Stanley calculated the future equity value per share of Livongo common stock as ofAugust 4, 2021 by applying its public trading comparables analysis reference ranges for AV/CY2021E Revenue of 19.6x - 30.4x, based on both the Livongo street case and the Livongo management projections, to Livongo's calendar year 2022 estimated revenue. Morgan Stanley discounted the resulting future equity values per share toAugust 4, 2020 using a discount rate equal to Livongo's assumed cost of equity of 9.4%, which cost of equity was selected based on the application of Morgan Stanley's professional judgment and experience and the Capital Asset Pricing Model. As inputs to the Capital Asset Pricing Model, Morgan Stanley took into account, among other things, risk-free rate, market risk premium and beta. Based on these calculations, this analysis implied the following value ranges per share of Livongo common stock:
The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Discounted Equity Value Analysis -Teladoc Discounted Equity Value Analysis" beginning on page 111 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first paragraph under that heading (such paragraph continuing onto page 112) in its entirety with the following:
Teladoc Discounted Equity Value Analysis
Morgan Stanley also calculated ranges of implied equity values per share of Teladoc common stock as ofAugust 4, 2020 . To calculate the discounted equity value per share of Teladoc common stock, Morgan Stanley used calendar year 2022 estimated revenue based on the Teladoc street case and each of the Teladoc management projections. For each scenario, Morgan Stanley calculated the future equity value per share of Teladoc common stock as ofAugust 4, 2021 by applying its public trading comparables analysis reference ranges for AV/CY2021E Revenue of 14.6x - 25.4x, based on the Teladoc street case and each of the Teladoc management projections, to Teladoc's calendar year 2022 estimated revenue. Morgan Stanley discounted the resulting future equity values per share toAugust 4, 2020 using a discount rate equal to Teladoc's assumed cost of equity of 7.5%, which cost of equity was selected based on the application of Morgan Stanley's professional judgment and experience and the Capital Asset Pricing Model. Based on these calculations, this analysis implied the following value ranges per share of Teladoc common stock: Implied Value Per Share Range for Forecast Scenario Teladoc Teladoc Street Case$ 231.02-$393.16 Teladoc Case 1 forecasts$ 253.25-$431.73 Teladoc Case 2 forecasts$ 280.51-$479.03 The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Discounted Cash Flow Analysis -Livongo Discounted Cash Flow Analysis" beginning on page 112 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first paragraph under that heading (such paragraph continuing onto page 113) in its entirety with the following: Morgan Stanley performed this analysis on the estimated future cash flows contained in the forecasts representing the Livongo street case and each of Livongo Plan A projections and Livongo Plan B projections, including estimates for net operating loss and tax credit carryforwards, each as set forth in the section entitled ''The Merger-Livongo Unaudited Financial Projections'' beginning on page 122. Morgan Stanley first calculated the estimated unlevered free cash flows of Livongo for the third and fourth quarters of calendar year 2020 and calendar years 2021 through 2030, defined as net earnings before interest, income taxes, depreciation and amortization and excluding stock-based compensation and related payroll taxes, amortization of intangibles, and acquisition related expenses, as provided by Livongo management, less stock-based compensation expense, taxes, capital expenditures, capitalized software expenses, and adjusted for changes in net working capital, which estimated unlevered free cash flow was reviewed and approved by Livongo management for Morgan Stanley's use. The Livongo street case estimates for the third and fourth quarters of calendar year 2020 and calendar years 2021 through 2022 were based on publicly availableWall Street research reports as ofAugust 4, 2020 , and the Livongo management projections for such period were provided by the Livongo management. The estimated unlevered free cash flow estimates for calendar years 2023 through 2030 for each of the Livongo street case and the Livongo management projections were based on extrapolations reviewed and approved for Morgan Stanley's use by Livongo management as ofAugust 4, 2020 . Morgan Stanley calculated terminal values for Livongo by applying a range of perpetual growth rates of 2.5% to 3.5%, based on Morgan Stanley's professional judgment, to the unlevered free cash flows of Livongo through 2030, resulting in a terminal value ranges of$14,652 million to$23,863 million ,$29,828 million to$48,579 million and$26,221 million to$42,705 million for Livongo street case, Livongo Plan A projections and Livongo Plan B projections, respectively. Morgan Stanley then discounted the unlevered free cash flows, terminal value and net operating loss and tax credit carryforwards to present value as ofAugust 4, 2020 using mid-year convention and a range of discount rates from 8.3% to 10.2%, which were selected based on Morgan Stanley's professional judgment to reflect an estimate of Livongo's weighted average cost of capital based on the Capital Asset Pricing Model. As inputs to the weighted average cost of capital, Morgan Stanley took into account, among other things, risk-free rate, market risk premium, beta, upon the application of Morgan Stanley's professional judgment and experience, a sensitivity adjustment around the calculated value and estimated -------------------------------------------------------------------------------- cost of debt. The present value of the net operating loss and tax credit carryforwards resulted in the ranges of$38 million to$40 million ,$36 million to$37 million and$35 million to$37 million for Livongo street case, Livongo Plan A projections and Livongo Plan B projections, respectively. Morgan Stanley then added net cash of Livongo of approximately$289 million to the value of the discounted unlevered free cash flow, terminal value and net operating loss and tax credit carryforwards to derive the implied equity value. The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Discounted Cash Flow Analysis -Teladoc Discounted Cash Flow Analysis" beginning on page 113 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first and second paragraphs under that heading in their entirety with the following: Morgan Stanley performed this analysis on the estimated future cash flows contained in the forecasts representing the Teladoc street case and each of Teladoc Case 1 forecasts and Teladoc Case 2 forecasts, including estimates for net operating loss and tax credit carryforwards, each as set forth in the section entitled ''The Merger-Livongo Unaudited Financial Projections'' beginning on page 122. Morgan Stanley first calculated the estimated unlevered free cash flows of Teladoc for the third and fourth quarters of calendar year 2020 and calendar years 2021 through 2030, defined as net loss before interest, taxes, depreciation, amortization, stock-based compensation, gain on sale and acquisition and integration related costs, as provided by Teladoc management, less stock-based compensation expense, taxes, capital expenditures, capitalized software expenses, and adjusted for changes in net working capital, which estimated unlevered free cash flows was reviewed and approved by Livongo management for Morgan Stanley's use. The estimates of unlevered free cash flow for the third and fourth quarters of calendar year 2020 and calendar years 2021 through 2022 were based on the Teladoc street case and the Teladoc management projections, except Livongo management estimated Teladoc's financial results for the third and fourth quarters of calendar year 2020 based on the Teladoc management projections for calendar year 2020 as adjusted by Livongo management to reflect Teladoc's actual financial results for the first and second quarters of calendar year 2020, which adjusted forecasts for the third and fourth quarters of calendar year 2020 were approved by Livongo management for Morgan Stanley's use in its financial analysis. Based on the foregoing projections, the estimated unlevered free cash flow for calendar years 2023 through 2030 for the Teladoc street case and each of the Teladoc management projections were extrapolated and approved for Morgan Stanley's use by Livongo management as ofAugust 4, 2020 . Morgan Stanley calculated terminal values for Teladoc by applying a range of perpetual growth rates of 2.5% to 3.5%, based on Morgan Stanley's professional judgment, to the unlevered free cash flows of Teladoc through 2030, resulting in a terminal value ranges of$25,337 million to$38,694 million ,$34,087 million to$52,056 million and$41,281 million to$63,043 million for Teladoc street case, Teladoc Case 1 forecasts and Teladoc Case 2 forecasts, respectively. Morgan Stanley then discounted the unlevered free cash flows, terminal value and net operating loss and tax credit carryforwards to present value as ofAugust 4, 2020 using mid-year convention and a range of discount rates from 7.3% to 8.2%, which were selected based on Morgan Stanley's professional judgment to reflect an estimate of Teladoc's weighted average cost of capital, based on the Capital Asset Pricing Model. As inputs to the weighted average cost of capital, Morgan Stanley took into account, among other things, risk-free rate, market risk premium, beta, upon the application of Morgan Stanley's professional judgment and experience, a sensitivity adjustment around the calculated value and estimated cost of debt. The present value of the net operating loss and tax credit carryforwards resulted in the ranges of$104 million to$107 million ,$105 million to$108 million and$110 million to$112 million for Teladoc street case, Teladoc Case 1 forecasts and Teladoc Case 2 forecasts, respectively. Morgan Stanley then deducted net debt of Teladoc of approximately$155 million to the value of the discounted unlevered free cash flow, terminal value and net operating loss and tax credit carryforwards to derive the implied equity value. The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Precedent Transaction Analysis -Precedent Transaction Multiples Analysis" beginning on page 116 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first table under that heading (which table is the second table on page 116) in its entirety with the following: AV/NTM Target Acquirer Announced Completed Revenue* Pivotal Software, Inc. VMware, Inc. August 22, 2019 December 30, 2019 3.4x Tableau Software, Inc. salesforce.com, inc. June 10, 2019 August 1, 2019 11.0x MINDBODY, Inc. Vista Equity Partners December 24, 2018 February 15, 2019 6.7x SendGrid, Inc. Twilio Inc. October 15, 2018 February 1, 2019 10.8x Adaptive Insights, Inc. Workday, Inc. June 11, 2018 August 1, 2018 11.0x Mulesoft salesforce.com, inc. March 20, 2018 May 2, 2018 15.7x Fleetmatics Group PLC Verizon Communications Inc. August 1, 2016 November 7, 2016 6.3x NetSuite Inc. Oracle Corporation July 28, 2016 November 7, 2016 8.6x
--------------------------------------------------------------------------------
AV/NTM
Target Acquirer Announced Completed Revenue*
LinkedIn Corporation Microsoft Corporation June 13, 2016 December 8, 2016 6.8x
Demandware, Inc. salesforce.com, inc. June 1, 2016 July 11, 2016 8.9x
Marketo, Inc. Vista Equity Partners May 31, 2016 August 16, 2016 5.9x
Cvent, Inc. Vista Equity Partners April 18, 2016 November 29, 2016 6.5x
Concur Technologies, Inc. SAP SE September 18, 2014 December 4, 2014 10.3x
*Multiples not publicly disclosed are estimates based on press releases and
The disclosure under the heading "The Merger - Opinion of Livongo's Financial Advisor -Other Information -Analyst Price Targets" beginning on page 118 of the joint proxy statement/prospectus is hereby amended and supplemented by replacing the first paragraph under that heading in its entirety with the following: Morgan Stanley reviewed publicly available equity research analysts' share price targets for Livongo common stock and Teladoc common stock, as summarized below. Based on Morgan Stanley's professional judgment and experience, Morgan Stanley selected the lowest and highest undiscounted price targets issued by those research analysts with publicly available price targets for shares of Livongo common stock and Teladoc common stock, resulting in ranges of$55.00 to$132.00 per share of Livongo common stock and$150.00 to$275.00 per share of Teladoc common stock.
Livongo Equity Research Analysts Price Targets
Analyst Date of Report Target Price Stifel, Nicolaus & Co., Inc. July 29, 2020 $ 100 The Benchmark Company, LLC July 29, 2020 $ 110 Cowen and Company, LLC July 29, 2020 $ 88 Stephens, Inc. July 20, 2020 $ 130 Morgan Stanley July 07, 2020 $ 91 KeyBanc Capital Markets Inc. July 15, 2020 $ 105 Credit Suisse July 14, 2020 $ 132 Leerink Swann LLC July 13, 2020 $ 103 Canaccord Genuity July 08, 2020 $ 110 . . .
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