Citi Downgrades Envision Healthcare, Questions Rationale Behind AmSurg Deal

Citi has downgraded Envision Healthcare Holdings Inc EVHC to Neutral from Buy following its merger deal with Amsurg Corp AMSG.

Citi 'Surprised'

"We are surprised at the ratio, which essentially values EVHC at 9.7x 2017 EBITDA. While we understand the synergy upside opportunity of the combination and perhaps a stronger asset, we struggle with EVHC agreeing to this deal and have to question why now when business was seemingly improving and valuation depressed vs peers," analyst Ralph Giacobbe wrote in a note.

Related Link: Wells Fargo Downgrades Envision Healthcare Hldgs To Market Perform

"Moreover it is difficult to understand accepting a merger at these levels with a 15x deal multiple that AMSG previously offered for a comp," Giacobbe noted.

The analyst also cut the price target on Envision shares to $27 from $28.

The Companies' Comments

According to a press release issued by the companies, each Envision share will be exchanged for 0.334 AmSurg shares. The combined entity will have a pro forma market cap of about $10 billion and enterprise value of approximately $15 billion based on the closing stock prices of Envision and AmSurg on June 14, 2016.

Envision shareholders will own about 53 percent of the combined company, while AmSurg shareholders owning the remaining 47 percent.

Movements

Shares of Envision fell 6.5 percent in the pre-market hours on Thursday to $25.70 after closing Wednesday's regular trading at $27.51. AmSurg closed Wednesday's trading at $77.50.

At time of writing, Envision was down 3.56 percent at $26.53, while AmSurg was up 3.93 percent at $80.54 early in Thursday's regular trading session.