• Miami-based healthcare provider Cano Health (NASDAQ: CANO) was once considered an attractive M&A target, but rumors of financial insolvency and shareholder concerns have plagued the company.
• Third Point, one of Cano's largest stockholders, sold its entire stake, leading investors to question the company's prospects and management actions.
• Three directors resigned from Cano's board calling for CEO Marlow Hernandez's resignation, stating it would be beneficial for the interests of stockholders and employees.
• Several reputable law firms already initiated investigations on possible Investor rights violations and fellow investors are gathering in the Cano Misconduct Case to fight their losses through securities class action.

M&A Rumors Episode

In September 2022, Cano Health, a senior primary healthcare provider with 151 facilities across six states and Puerto Rico, was in the spotlight after a report from the Wall Street Journal. According to the report, CVS Health Corp. and Humana Inc. were in talks to acquire Cano Health, causing a 32% surge in Cano's stock price. Investors eagerly awaited more news about the potential acquisition.

By early October, the excitement intensified when it was reported that CVS was in exclusive talks to buy out Cano Health. This news caused Cano's stock price to rise to $9.64. However, the happiness didn't last long.

In mid-October, Dealreporter leaked information that CVS had walked away from the potential acquisition of the senior-care facility operator. The news was devastating for Cano's investors, and the company's shares plummeted by over 40%.

After that, there was no solid news about the matter until January 10, 2023, when reports emerged that CVS was exploring an acquisition of Oak Street Health for more than $10 billion. This news left Cano's investors wondering if there was ever a Cano deal on the table and if it was indeed planned, what caused it to fall apart.

Investors speculated whether the high offer price was the reason for the deal's collapse or if there were hidden issues that were revealed during the due diligence process. The rumors and uncertainty surrounding Cano's potential acquisition had left its investors in a state of flux, eagerly awaiting the company's next move.

Going Concern Scene

On November 10, 2022, Cano faced yet another setback. After reporting weak Q3 financial results and issuing its second consecutive guidance cut, the company's market cap took a major hit, erasing 35% of its value. While revenue and total membership had increased by 33% and 40% respectively compared to the previous year, Cano's senior-oriented primary care centers reduced their annual revenue, EBITDA, and medical centers numbers forecast.

Investors and analysts alike were worried about the Company's $112 million loss in the quarter and its reported $24 million in cash, a significant decrease compared to the $163.2 million reported in Q3 2021. As a result, multiple equity analysts lowered their ratings, and S&P Global Ratings downgraded Cano's credit grade to B-. The rating agency cited Cano's weak credit measures as the reason for the downgrade, stating that the company had little room to outperform.

Investors were left wondering why Cano's management, board of directors, and activist shareholders did not take the necessary steps to ensure the financial stability of the Company. Affected investors initiated an investigational Cano Case on possible Investor rights violations and are gathering now to fight their losses through securities class action.

Stock Sell-Off Culmination

The year 2022 was tough for Cano Health as it faced a series of setbacks, with the most recent being the news of Third Point LLC selling its entire stake in the healthcare provider on December 7. According to a Bloomberg report, mounting concerns about Cano's liquidity led to the decision. This news came after a New York-based asset management firm had already disclosed a decreased stake of 3.5% in October, down from 6.4% in March.

Investors are now left wondering if this latest development signifies the absence of any prospects in Cano Health's investment story or if it is a result of a disagreement with the actions of the company's management. The sell-off is the culmination of a series of events that started in March 2022 when Daniel Loeb's Third Point LLC pushed for a sale process of the company. Owl Creek Asset Management also joined in August by writing a letter to Cano Health's Board of Directors, urging them to seek a strategic buyer. Both investors believed that Cano Health was underperforming compared to its market peers after the SPAC deal backed by billionaire Barry Sternlicht by which the company went public.

Resignation of Key Board Members

In a surprise move, three key board members of Cano Health, including Barry Sternlicht, Elliot Cooperstone, and Lewis Gold, announced their resignation in March 2023. Their departure from the board of the healthcare provider was attributed to their concerns regarding the leadership of Dr. Marlow Hernandez, the company's founder and CEO. In particular, Sternlicht was vocal in his call for Hernandez's resignation, citing his belief that his continued leadership was detrimental to the interests of the company's stockholders and employees.

The resignation of these board members sent shockwaves throughout the investment community, with many questioning the future direction of Cano Health. As a major player in the healthcare industry, the company had attracted significant investment and had seen its stock price rise steadily over the past few years. However, with the departure of Sternlicht and his colleagues, investors were left wondering whether the company's leadership would be able to steer it through the challenges of an ever-evolving healthcare landscape.

In response to the resignations, Cano Health issued a statement acknowledging the departures and expressing its appreciation for the contributions of Sternlicht, Cooperstone, and Gold. The company also emphasized its commitment to the continued growth and success of its business, stating that it would work diligently to ensure that the concerns raised by the departing board members were addressed in a timely and effective manner.

The news of these resignations continued to dominate headlines in the weeks that followed, with many analysts speculating on the impact that they would have on the company's prospects. Some investors expressed concern that the departures could signal deeper problems within the organization, while others remained optimistic about Cano Health's ability to weather the storm and emerge even stronger in the months and years to come.

Conclusion

During all these events, Cano's shares managed to at first soar by 50% on M&A rumors, to then fall over 85% on liquidity concerns. The most remarkable thing is that all this occurred within just 3 months during which both long and short investors experienced significant depreciations of their positions. Taking all the facts, events, and market reactions into account, Investors have reasons to suspect that one or more market players violated the rights of shareholders, which resulted in significant investment losses for them.

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