Owl Creek Asset Management Delivers Letter to Cano Health Board of Directors

Urges Company to Actively Pursue Strategic Alternatives and Sale of the Company

NEW YORK, Aug. 22, 2022 /PRNewswire/ -- Owl Creek Asset Management, L.P. ("Owl Creek"), on behalf of its affiliated investment funds, today sent a letter to the Cano Health, Inc. ("Cano or the "Company") (NYSE: CANO) Board of Directors strongly encouraging the Company to pursue strategic alternatives by engaging with investment bankers and other advisors to pursue a sale to a strategic buyer.

The full text of the letter follows:

August 22, 2022

Dr. Marlow Hernandez
Chairman of the Board and Chief Executive Officer
Cano Health, Inc.
9725 NW 117th Avenue
Miami, Florida 33178

Dear Dr. Hernandez and other members of the Board of Directors:

I write on behalf of investment funds managed by Owl Creek Asset Management, L.P. ("Owl Creek" or "we"), which, as of August 19, 2022, own 8,685,171 shares of Cano Health, Inc., representing 3.745% percent of the Class A equity of the Company, to share concerns we have with the Company's current trajectory. 

While we believe in the Company's business model and management's ability to execute the post "de-SPAC" business plan, the past year's roller coaster of accounting issues has shaken our confidence. We feel that Cano's continued growth will require a larger and stronger vertically integrated partner with access to the capital needed to execute the Company's business plan.  So, we were encouraged to hear on the second quarter earnings call that you are "open to considering all strategic alternatives to accelerate value creation." 

We strongly encourage you to actively pursue these strategic alternatives by engaging with investment bankers and other advisors to pursue a sale of the Company to a strategic buyer.

Owl Creek participated in the private placement that took place concurrently with your de-SPAC transaction, and since then has acquired significantly more shares in the secondary market.  We did so because we saw -- and continue to see -- an enormous opportunity to generate considerable economic value by delivering superior healthcare more efficiently.  Your investor day quantified this opportunity as we learned that that the cohort of MA patients among the 26,000 members that joined in the first half of 2019 saw three-year medical costs decline at a 3% compounded annual rate, versus an expected 10% increase.  Cano has exceeded the guidance outlined in the March 4, 2021 investor presentation in terms of membership, revenue, and adjusted EBITDA, even excluding the contribution from Direct Contracting Entities ("DCE").  Including DCE, which we believe to be an enormous opportunity both financially and strategically, Cano is close to achieving its 2023 targets a year early.  We believe that these results validate our view on the market opportunity and the Company's ability to capture a meaningful portion of it.

Unfortunately, Cano has consistently traded at a discount to its peers due to its SPAC heritage, its hybrid model (owned and operated medical centers along with affiliates), and heavy concentration in the South Florida market.  One could argue for some discount due to one or more of these factors, but the valuation discrepancy between Cano and peers is highly punitive.  Clearly the recent back and forth on the EBITDA moving from one year to the next also is not helping and will foreclose any thoughts of share sales at reasonable prices to fund growth. The best-known company in the owned and operated medical center segment, and the first to go public, Oak Street Health Inc. ("Oak Street"), has an enterprise value that is nearly 3.2 times the high end of its 2022 revenue guidance of $2.145 billion.  One of the leaders in the affiliate space, agilon health inc. ("agilon"), also has an enterprise value more than three times the high end of its 2022 revenue guide of $2.635 billion.  Despite Cano guiding to $2.85 billion to $2.90 billion of revenue for the year -- which is higher than both Oak Street and agilon -- the Company trades at under 1.3x the low end of the revenue guide. 

With the Company needing capital to compete with its peers and achieve the growth available in current and new markets, its depressed valuation leaves two choices: sacrifice growth or sell equity at highly dilutive levels. Both are unattractive options in our view. 

Given the persistent and wide gap between where Cano shares trade and the valuation of comparable companies, we believe there is ample room to come to terms with a strategic buyer that maximizes value for shareholders and provides the Company a platform for future growth.  The industry is ripe for consolidation with large health care companies looking to grow.

Recent transactions support this assertion and the willingness of buyers to pay a meaningful premium to where Cano's stock has traded for much of this year.  For example, as recently as July, Amazon.com Inc. ("Amazon") announced that it was buying 1Life Healthcare Inc. (better known as "One Medical") for $3.9 billion.  Amazon is paying well over three times this year's expected revenue of One Medical, in line with where both Oak Street and agilon are valued.  As we know from One Medical's merger proxy filing dated August 9, 2022, there was interest from another company besides Amazon referred to as "Party A" in the proxy.  It is widely speculated that Party A is CVS Health Corporation ("CVS"), which has been very vocal in its interest in primary care-centric value-based care (VBC) providers.  In fact, CVS has stated since late last year that they have well over $10 billion in capital to deploy towards strategic initiatives with VBC at the top of the list.  When asked on their first quarter earnings call on May 4, 2022, as to why they have yet to announce a deal, CVS CFO Shawn Guertin said, "We've evaluated a range of assets in and around the care delivery space.  I'll remind you most of these assets aren't up for sale.  And so that dialogue starts a process."  They may have started the process with One Medical, but Amazon finished it.  On their second quarter earnings call on August 3, 2022, CVS CEO Karen Lynch, in response to the first question specifically referencing the One Medical deal, stated, "we can't be in primary care without M&A."  CVS and the other managed care companies are clearly prime candidates with which to discuss alternatives.  CVS has also been named as a suitor for Signify Health and it was reported late yesterday that Amazon, UnitedHealth Group and Option Care Health are interested in the home-health-services provider. If Cano had an enterprise value equal to three times this year's expected revenue like Oak Street Health and agilon do, or one similar to what Amazon is paying for One Medical, that would increase the valuation by more than $4.5 billion, equating to a share price of approximately $14.

Owl Creek invested in Cano because we saw the massive opportunity in which primary care providers can bend the medical cost curve through preventive medicine and disease management delivering better clinical care more cost effectively.  Your management team has achieved strong growth in membership, medical centers, and geographic markets to date; however, we believe that maximization of the Company's long-term potential will require a strategic transaction with a well-funded entity.  Such a transaction would not only result in meaningful appreciation in the current share price, but also improve patient health by delivering primary care medical service to as many people as possible.

We look forward to your response and hearing about your proactive efforts in pursuing a strategic suitor for this highly valuable and attractive asset.

Sincerely,

Jeffrey A. Altman
Owl Creek Asset Management, L.P.

About Owl Creek Asset Management, L.P.

Owl Creek Asset Management, L.P. is an investment advisory firm based in New York.  It primarily employs an event-driven and fundamental value long/short investment strategy in equity and debt markets across the globe.  The firm was founded in 2001 and is registered as an investment adviser with the U.S. Securities and Exchange Commission.

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SOURCE Owl Creek Asset Management, L.P.