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IMS Health to be acquired by investment firms for $5.2 billion
NORWALK, Conn.—After suffering significant losses in the third quarter, IMS Health, a provider of market intelligence to the pharmaceutical and healthcare industries, announced today that it will be acquired by investment firms TPG Capital and CPP Investment Board in a transaction valued at $5.2 billion, including the assumption of debt.
Under the agreement, IMS shareholders will receive $22 cash for each share of IMS common stock they own, representing a premium of approximately 50 percent over the closing share price on Friday, Oct.16, the last trading day prior to public speculation that IMS was considering its strategic alternatives. The deal also includes the assumption of nearly $1.2 billion in debt. Completion of the transaction is subject to approval of IMS shareholders, regulatory approvals and customary closing conditions and is expected to occur by the end of the first quarter of 2010.
IMS, which earned $2.3 billion in 2008 revenue, offers market intelligence products and services such as product and portfolio management capabilities, commercial effectiveness innovations, managed care and consumer health offerings, and consulting and services solutions. The company announced last month that it was engaged in the "exploration of strategic alternatives," including a possible sale, after it swung to a loss in the third quarter. IMS' sales slipped 6 percent to $540 million from $573 million a year ago. Following staff and units cuts—resulting in a large restructuring-related charge—IMS lost $9.3 million for the quarter, compared to a profit of $75.9 million a year earlier.
IMS also reported a weak second quarter and said in July that its sales and earnings would fall short of expectations this year—but said it was still on track to hit its full-year free cash flow target of $380 million.
IMS Chairman and CEO David R. Carlucci said the transaction enables the firm's shareholders to "realize substantial value from their investment in IMS with an immediate cash premium, while at the same time strengthening our position to capture long-term growth opportunities."
"With the backing of world-class private equity partners, we will continue our focus on expanding into new markets, further improving the quality and depth of offerings we deliver to our clients, and playing a bigger role in the healthcare market," Carlucci said in a statement.
The CPP Investment Board is a professional investment management organization that invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries. In order to build a diversified portfolio of CPP assets, the firm also invests in public equities, private equities, real estate, inflation-linked bonds, infrastructure and fixed-income instruments. Headquartered in Toronto, with offices in London and Hong Kong, CPP is governed and managed independently of the Canada Pension Plan and at arm's length from governments. On June 30, the CPP Fund totaled $116.6 billion, of which $18.4 billion represents private investments.
TPG Capital is the global buyout group of TPG, a leading private investment firm founded in 1992 with approximately $45 billion of assets under management and offices in San Francisco, London, Hong Kong, New York, Fort Worth, Washington, D.C., Melbourne, Moscow, Mumbai, Paris, Luxembourg, Beijing, Shanghai, Singapore and Tokyo. The firm's healthcare investments have included Axcan Pharma, Biomet, Fenwal, IASIS Healthcare, Quintiles Transnational and Surgical Care Affiliates, among others.
Mark Wiseman, senior vice president of private investments for CPP Investment Board, said the company and its partner TPG "are like-minded, long-term investors and we look forward to working together and in partnership with management to help grow the business."
Reaction to the acquisition varied. The Wall Street Journal noted that the transaction, if completed, would be the largest leveraged buyout of the year, "and the clearest sign yet that an improving economy and healthier financing markets are increasing private equity activity." Charles Bobrinskoy, vice chairman at Ariel Investments, a Chicago-based investment fund that is the largest holder of IMS shares, told the newspaper that it "would strongly support" the transaction.
"While we believe that IMS is a very valuable company, it is clear to us that this value will not be recognized in the public markets. It may be better for IMS to be a private company," Bobrinskoy told the newspaper.
But Vitaliy N. Katsenelson, a portfolio manager/director of research at Investment Management Associates in Denver, had a strong negative reaction, telling MarketWatch that IMS has been "stolen from its shareholders."
"This company, which has virtually has no competition, has barriers to entry impossible for a new entry to overcome, and a cash printing machine will be sold for about 12 times free cash flows," Katsenelson said. "IMS Health management and board have a history of making dumb capital allocation decisions, but this one may go down in history as their dumbest. We own these shares and will probably hold on to them in the hope that shareholders will refuse this offer."