Athenahealth Makes a Shareholder-Backed Shake-Up, Keeping CEO

By David Benoit Features Dow Jones Newswires

Jonathan Bush, the sometimes outspoken founder and head of Athenahealth Inc., will cede his chairmanship but stay as chief executive in a shake-up that has the backing of two of his biggest shareholders, months after activist investor Elliott Management Corp. piled into the stock.

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Mr. Bush will also give up operational control of the health-care-software company to a new president. Both roles are expected to be filled following searches with external candidates, the company said Tuesday.

Yet Mr. Bush will remain as the daily leader of the company, a decision applauded by typically quiet mutual-fund investors at T. Rowe Price and Morgan Stanley who have said his visionary leadership has been key to the company's growth, even if the company needs to mature into a more disciplined financial enterprise.

Each firm owns more than 10% of the stock and has been an investor for several years, and their support is a rare example of public backing by longtime holders of an executive facing an activist investor.

Elliott hasn't publicly commented on the company or what it wants done, but often urges executive changes or sales.

"Athena is one of those companies that's on its front foot, but it's got to get sharper," Henry Ellenbogen, of T. Rowe Price's giant New Horizons Fund, said in an interview. "Now the company is basically entering kind of its next phase" and needs to "strengthen its management team and its financial discipline," he said.

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Dennis Lynch, head of growth investing at Morgan Stanley Investment Management, said in a statement that he was "enthusiastic about Athenahealth's potential to create shareholder value going forward" under Mr. Bush.

The company will also find a second new independent director and will run an operational review aimed at boosting performance. It said it was targeting $100 million in cost cuts. Last month, it also launched a search for a new financial chief.

Athenahealth shares rose 5% to $145.35 on Tuesday, pushing its gains since Elliott came into the picture to 36%.

Elliott disclosed a 9.2% stake in May.

Elliott's activism in technology and software companies is often focused on selling companies it believes are valuable cash engines. It often argues that an underperforming stock can be improved with better discipline and the removal of a founder in favor of an operations-focused leader.

Athenahealth's stock popped when Elliott's stake was disclosed, partly on speculation it might be a sale target. Some analysts also believed Elliott would seek to push out Mr. Bush.

Mr. Bush, who is nephew of George H.W. Bush and cousin to George W. Bush, both former U.S. presidents, is known for making colorful comments to media and for speaking out about the health-care industry, including the debate in Washington, D.C.

In 2014, he responded aggressively to a public presentation by David Einhorn suggesting investors bet against Athenahealth's stock. The shares have a high level of short interest and have been volatile over the years. The stock has nearly quintupled since Athenahealth's 2007 initial public offering, but before Elliott arrived it had been down over the past three years, steeply underperforming a surging technology sector.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

August 01, 2017 14:54 ET (18:54 GMT)