Allscripts Plunges After Chairman, Three Directors Leave

Allscripts Healthcare Solutions Inc., an electronic-health records provider, plunged the most in more than three years after its chairman was fired in a board dispute and three directors resigned in protest.

Allscripts fell 36 percent to $10.29 at 4 p.m. New York time, the most since Oct. 13, 2008. Chicago-based Allscripts also lowered its full-year forecast, leading to at least seven downgrades by analysts.

The chairman, Phil Pead, who joined Allscripts after it acquired Eclipsys Corp. in August 2010, was dismissed April 25 after the board “engaged in extensive deliberations regarding the leadership of the company,” Allscripts said yesterday in a statement. Three directors who didn’t agree with the decision resigned. Specifics of the debate haven’t been made public.

“You have two companies come together, two boards come together, and clearly there’s a divisiveness going on,” said Anthony Vendetti, an analyst with Maxim Group in New York. “We think there was an internal power struggle between the current CEO, Glen Tullman, and the chairman, Phil Pead.”

Pead had been chief executive officer and president of Eclipsys, which sold software to hospitals and health systems, when the company was purchased by Allscripts for $1.3 billion in stock. As Allscripts chairman, he was to work on client and strategic relationships, the companies said then.

Take Advantage

The acquisition positioned the combined company to take advantage of health-care consolidation and reimbursement systems that reward providers for quality of care rather than the number of procedures. Allscripts has a dominant share of an electronic health-record market that’s benefiting from $27.4 billion in U.S. government stimulus money.

Allscripts’ vision was to create “a fully connected community,” Tullman, the combined company’s CEO, said in an interview at the time. “Small physicians’ offices connected to the largest, best hospital, connected to post-acute care facilities.”

As of September 15, Allscripts had contracts with 180,000 physicians, 1,500 hospitals and 10,000 post-acute care facilities such as rehabilitation centers, according to Tullman.

Ariana Nikitas, a spokeswoman for Allscripts, said she couldn’t respond immediately to a request today for an interview with Tullman.

Different Views

Yesterday, on a conference call with analysts, Tullman said executives in mergers sometimes have different views of the future and direction of the combined organization.

The board didn’t make its leadership decision hastily, he said while declining to comment further. Departing along with Pead were directors Catherine M. Burzik, Eugene V. Fife, a former Eclipsys board chairman, and Edward A. Kangas, board chairman of Tenet Healthcare Corp., a Dallas-based hospital operator, and a former Eclipsys board member.

The departures weren’t spurred by a bid or approach from another company and don’t indicate a change in strategy, Tullman said on the call.

“There was a level of surprise among some of the analysts that Glen Tullman was able to survive this because of the magnitude of the miss in the first quarter and the revised downward guidance,” Vendetti said in a phone interview. “When this type of turmoil occurs, usually the CEO pays the price.”

Investor Surprise

Investors may be surprised “that there wasn’t a change across the C-suite,” Constantine Davides, an analyst with JMP Securities LLC in San Francisco, said in a telephone interview.

Davides and Vendetti said they don’t own shares in Allscripts.

The company yesterday said 2012 earnings excluding one-time items may be 74 to 80 cents a share, compared with a February forecast of $1.06 to $1.10. First-quarter net income declined to $5.8 million, or 3 cents a share, on revenue of $364.7 million. Revenue missed the $387.6 million average of 18 analyst estimates compiled by Bloomberg.

Piper Jaffray Cos., Jefferies Group Inc., Cowen Group Inc., Oppenheimer Holdings Inc., Credit Suisse Group AG, Barclays Capital and UBS AG all reduced their ratings on Allscripts.

Allscripts also announced yesterday that Bill Davis, the chief financial officer, had resigned effective May 18. During the conference call, Davis said he was leaving because he received an opportunity outside the company that couldn’t be passed up. He said his decision wasn’t related to the revised earnings forecast.

“A number of our clients and prospects delayed commitments as they wait for us to introduce new releases and demonstrate more robust integration,” Tullman said in the company’s statement. “This dynamic, combined with the recent reorganization of our sales and service teams, were the primary factors that caused sales to be lower than our expectations.”

Credibility ‘Damaged’

Allscripts probably will recover from the tumult, Vendetti and Davides agreed.

“There’s going to have to be a lot of rebuilding of management credibility, which obviously is significantly damaged by this announcement,” Vendetti said.

The company offers a “strong” medical records product for doctors’ offices and its hospital records software, acquired in the Eclipsys deal, is competitive with “great products” offered by companies including closely held Epic Systems Corp. and Cerner Corp., Vendetti said.

“It’s just a question of execution,” Davides said.

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