* Teladoc will pay 0.5920 of a share plus $11.30 in cash
* Deal to create leader in online acute care and chronic care management
* Shares of Teladoc down 14.1%, Livongo down 6.3% (Adds background on the deal, updates shares)
By Noor Zainab Hussain, Manas Mishra and Rebecca Spalding
Aug 5 (Reuters) - Remote medicine company Teladoc Health Inc has agreed to acquire chronic care provider Livongo Health Inc for $18.5 billion, seeking to expand its offerings amid a boom in virtual healthcare spurred by the coronavirus pandemic.
It is by far Teladoc's largest acquisition after a series of smaller deals turned it into the biggest dedicated U.S. provider of mobile phone and internet-based healthcare services, following its initial public offering in 2015.
In those five years, Teladoc's market value has increased tenfold to $17 billion based on growth prospects, given that the company has yet to turn a profit.
The coronavirus pandemic has supercharged the telemedicine market. McKinsey & Co has forecast that $250 billion of spending will shift to home and office health, compared to the total $3 billion in revenue that top telemedicine companies generated before the pandemic.
Analysts said a combined Teladoc and Livongo would be the undisputed leader in both online acute care and management of chronic conditions, an area buoyed by President Donald Trump's executive order on Monday to expand telehealth access to 57 million Americans.
Livongo specializes in helping patients manage chronic diseases like diabetes through smart devices and consumer-friendly software.
With the deal, Teladoc said it hopes to create an integrated system through which patients can see a doctor and manage their diseases virtually.
Teladoc will use its shares to pay for most of the deal. Livongo shareholders will receive 0.5920 shares and $11.33 in cash for each of their shares, the companies said in a statement. This will leave Teladoc shareholders with about 58% of the combined company, with Livongo shareholders owning the remainder.
Shares of both companies fell on the news, as investors fretted about Teladoc overpaying and not focusing enough on profitability. This drove down the value of Livongo's shares, because its shareholders stand to be paid mostly in Teladoc stock.
Teladoc and Livongo shares were down 17% and 10%, respectively, in afternoon trading on Wednesday.
"The Street views the price being paid as fairly high," said David Larsen, an analyst with Verity Research.
The deal was negotiated almost entirely virtually, according to a source familiar with the discussions.
Lazard Ltd and Paul, Weiss, Rifkind, Wharton & Garrison LLP advised Teladoc on the deal, while Morgan Stanley and Skadden, Arps, Slate, Meagher & Flom LLP advised Livongo. (Reporting by Manas Mishra and Noor Zainab Hussain in Bengaluru; Editing by Shinjini Ganguli, Patrick Graham and Bill Berkrot)
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