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UPDATE 1-Elliott Management proposes all-cash offer for Athenahealth

(Changes sourcing, adds background)

May 7 (Reuters) - Elliott Management has proposed an all cash offer of $160 per share for Athenahealth Inc that would value the healthcare IT company at about $6.5 billion, the hedge fund said in a letter to its board on Monday.

The offer from Elliott, which was first reported by CNBC, would represent a premium of about 27 percent to Athenahealth's Friday close. The hedge fund said it had "extensive private engagement" with Athenahealth's management and board during the past year, and believes that the company cannot make the changes it needs as a public company.

Athenahealth shares rose 24 percent to $156.17 per share on Monday.

Athenahealth did not immediately respond to request for comment.

About a year ago, Elliott Management disclosed a 9.2 percent stake in Athenahealth and said it planned to push operational and strategic changes at the Watertown, Massachusetts-based company. It said in the letter that it approached the company last November about the possibility of taking the company private and the company refused to engage.

Elliott said that the company had also not followed through on some changes it proposed last year, including finding a new president to oversee operations.

Athenahealth announced last year it would separate the role of chairman and CEO and brought on former General Electric CEO Jeff Immelt to be the company's chairman in February.

Elliott said it had received "financing indications from the leading banks in leveraged finance" to support its bid, which is valued at about $6.9 billion including debt.

Athenahealth was co-founded by Chief Executive Jonathan Bush, a cousin to former U.S. President George W. Bush and an executive who has publicly criticized the Republican partys plan to overhaul the U.S. healthcare system.

While activists have made offers for companies in the past and investors such as Carl Icahn have acquired companies before, New York-based Elliott, with assets of more than $33 billion, is one of the few hedge funds with a dedicated team chasing buyouts.

If Elliott is successful in this buyout, it would represent the largest deal to date for its Evergreen private equity arm, based in Menlo Park, California, spearheaded by partner Jesse Cohn. (Reporting by Liana B. Baker in New York and Manas Mishra in Bengaluru; Editing by Shailesh Kuber and Susan Thomas)