A top executive of Chicago-based imaging software developer Merge Healthcare has resigned, in the second management shakeup at the publicly traded firm this month.
Michael Ferro Jr., the firm's largest shareholder, stepped down as board chairman and as a director of the publicly traded Merge. The resignations were effective immediately. Dennis Brown, a board member since 1997, was named to replace Ferro as chairman.
Ferro is considering taking the company private, he said in a news release.
“Merge is at the heart of a large, growing and dynamic market for healthcare imaging, and, as its largest shareholder, I have a lot riding on its future success,” Ferro said in a news release. “I remain very confident in the company, its products and its new leadership team, and my decision does not reflect any disagreement with Merge's management or board.”
Earlier this month, Jeffrey Surges, Merge's CEO and a member of the board, resigned after the release of what Ferro called “disappointing” second-quarter financial results. The company reported that sales had fallen to $57.2 million for the second quarter of 2013, down about 9% from $62.9 million for the same period in 2012. Merge reported a net loss of $27.8 million for the second quarter of 2013, up from a $7.2 million loss for the period the year before.
Merge sells software systems for the storage, retrieval and exchange of medical images and related records to hospitals, clinics, labs, medical-device makers and pharmaceutical companies and also provides healthcare data analytics software. It began a push last year to switch to a subscription sales model rather than selling nonrecurring software licenses. For the first quarter ended March 31, nearly 15% of Merge's revenue was from subscription sales, compared with nearly 41% for nonrecurring licenses and 44% for maintenance fees and other services, according to its latest filings with the Securities and Exchange Commission.
But Merge faces the problem of trying to be too many things at once, says Todd Cozzens, a venture partner and senior adviser at Menlo Park, Calif.-based Sequoia Capital. He said Ferro is doing the right thing by stepping down if he wants to eventually take over the company.
“Because he is chairman and his fiduciary duty is to evaluate incoming offers in a neutral way, he should step off if he's going to make a play for the company,” Cozzens said. “That's what's happening.”
Ferro praised new Merge CEO Justin Dearborn and COO Nancy Koenig, saying “they can and will move the company forward. I will be available to Justin, Nancy, Dennis and the rest of the board in the future should they want my input."
Ferro added that he does not believe Merge's current stock price—it closed at $2.41 a share Friday, well off its one-year high of $4.61 reached on July 25 this year—“reflects the company's inherent strengths, market position or long-term prospects."
"While I have no immediate plans in this regard, over time, I intend to explore a variety of ways to increase shareholder value, including, possibly, a going-private transaction,” Ferro said in the release. “Of course, overall industry and market conditions, the company's business and financial performance and the availability of equity and debt capital and other factors will affect whether a transaction would be advisable. Accordingly, neither Merge nor I can speculate or provide any assurance as to whether, when, or on what terms such a transaction might occur," he said.
Ferro has served as a director and as board chairman since June 2008, when his investment company, Merrick RIS, “made a significant investment” in Merge, the news release said.
Merge has nearly 93.6 million shares of common stock outstanding, of which Merrick RIS and other affiliates of Ferro own approximately 28%.
In February, Merge announced it had removed itself from the auction block after hiring an investment firm to shop the company around.
Merge made its mark as a leading integrator of radiology systems. Cozzens said it was a “sort of mini health information exchange for hospital radiology systems. But then they tried to get into (picture archiving and communications) and (radiology information systems, the software systems that capture and retrieve images and the radiologist's reports about those images) for small hospitals. There are a lot of really competitive players there.”
Cozzens said M¬¬¬¬erge “bought things as far afield as anesthesia information systems and they just kind of made a bowl full of mush.”¬
Follow Joseph Conn on Twitter: @MHJConn
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