When Donato Tramuto was hired in 2015 as CEO of Healthways, Inc. (NASDAQ:HWAY), one of his promises that year was to restructure the company. The followed a tide of pressure from activist investor North Tide Capital who wanted the company to sell itself, a recommendation that the board refused to entertain.
But it turns out that selling portions of Healthways is something that seems to make sense for the board. Healthways has decided to monetize its unprofitable population health division. The management said the transaction would allow Healthways to streamline its operations, cut costs and focus more on its healthier targeted health programs business.
Equity stake in Sharecare
Healthways, Inc. (NASDAQ:HWAY) is selling its population health business to Sharecare, but it is not receiving cash in return. Instead, the sale will give Healthways an equity stake in Sharecare worth $30 million. What is interesting in the deal is that it is actually Healthways that is paying Sharecare some money in connection with the transaction.
$25 million to cover expected losses
Healthways has agreed to pay $25 million to Sharecare to cover expected losses in the population health business that it is selling to Sharecare. But Healthways could end up paying more to cover the losses if the business generates greater losses than expected. Although covering excess losses will not require Healthways to pay any cash directly to Sharecare, instead, it will cede up to $20 million of its shareholding in Sharecare.
The business that Healthways, Inc. (NASDAQ:HWAY) is tossing out generates about $250 million in annual revenues. But it has been a burden on the company, leading Healthways to EPS loss of $0.39 in 1Q2016.
As such, the idea of selling the business is to try to cut cost and generate more value for shareholders.
What happens to HWAY’s topline?
After removing the population health division, Healthways said that it expects its 2016 sales to be greater than $500 million and EBITDA margins to be around 20%.
The sale of the population health business has also come along with management shakeup at Healthways, Inc. (NASDAQ:HWAY). The company said that its CFO Alfred Lumsdaine together with another executive called Sean Slovenski will join Sharecare as part of the deal. Healthways’s CEO Tramuto will also seat on the board of Sharecare.