MutliPlan Corporation (MPLN) Misled Shareholders About Its Business Prospects
On July 12, 2020, Churchill III (a special purpose acquisition corporation) and MultiPlan announced their agreement to combine, announcing that the initial enterprise value for MultiPlan was approximately $11 billion or 12.9x estimated 2021 earnings before interest, taxes, depreciation and amortization. On September 18, 2020, Churchill III issued the proxy statement for the Merger (the “Proxy”), which noted the “competitive landscape” as a primary consideration on the board’s recommendation that shareholders vote in favor of the Merger. The Proxy further touted MultiPlan’s customer base and touted its projected revenue and earnings for 2021. The Proxy, however, contained materially false and misleading statements and omissions. Shareholders voted to approve the merger on October 7, 2020.
On November 11, 2020, Muddy Waters published a report revealing that MultiPlan was in the process of losing its largest client, UnitedHealthcare, which could cost the Company up to 35% of its revenue and 80% of its levered free cash flow within two years. UnitedHealthcare had purportedly launched a competitor, Naviguard, to reduce its business with MultiPlan and bring the over-priced and conflicted services offered by MultiPlan in-house. Muddy Waters also accused MultiPlan of obscuring its deteriorating financial position to investors by manipulating cash reserves to show inflated earnings figures in the years leading up to the Merger. Further, MultiPlan’s previous private equity firm owners had “loot[ed] the business” for cash in the lead up to the Merger, which necessitated the sale to Churchill III as the owners could not find anyone else willing to buy the failing business after the deep cuts that led to deteriorating service quality and increased customer complaints. On this news, the price of Churchill III shares plummeted to just $6.12 per share, nearly 40% below the price at which shareholders could have redeemed their shares at the time of the shareholder vote on the Merger.