IMS Health to be acquired by investment firms for $5.2 billion

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.

Amy Swinderman
NORWALK, Conn.—After suffering significant losses in thethird quarter, IMS Health, a provider of market intelligence to thepharmaceutical and healthcare industries, announced today that it will beacquired by investment firms TPG Capital and CPP Investment Board in atransaction valued at $5.2 billion, including the assumption of debt.
 
 
Under the agreement, IMS shareholders will receive $22 cashfor each share of IMS common stock they own, representing a premium ofapproximately 50 percent over the closing share price on Friday, Oct.16, thelast trading day prior to public speculation that IMS was considering itsstrategic alternatives. The deal also includes the assumption of nearly $1.2billion in debt. Completion of the transaction is subject to approval of IMSshareholders, regulatory approvals and customary closing conditions and isexpected to occur by the end of the first quarter of 2010.
 
IMS, which earned $2.3 billion in 2008 revenue, offersmarket intelligence products and services such as product and portfoliomanagement capabilities, commercial effectiveness innovations, managed care andconsumer health offerings, and consulting and services solutions. The companyannounced last month that it was engaged in the "exploration of strategicalternatives," including a possible sale, after it swung to a loss in the thirdquarter. IMS' sales slipped 6 percent to $540 million from $573 million a yearago. Following staff and units cuts—resulting in a large restructuring-relatedcharge—IMS lost $9.3 million for the quarter, compared to a profit of $75.9million a year earlier.
 
 
IMS also reported a weak second quarter and said in Julythat its sales and earnings would fall short of expectations this year—but saidit was still on track to hit its full-year free cash flow target of $380million.
 
IMS Chairman and CEO David R. Carlucci said the transactionenables the firm's shareholders to "realize substantial value from their investmentin IMS with an immediate cash premium, while at the same time strengthening ourposition to capture long-term growth opportunities."
 
"With the backing of world-class private equity partners, wewill continue our focus on expanding into new markets, further improving thequality and depth of offerings we deliver to our clients, and playing a biggerrole in the healthcare market," Carlucci said in a statement.
 
 
The CPP Investment Board is a professional investmentmanagement organization that invests the funds not needed by the Canada PensionPlan to pay current benefits on behalf of 17 million Canadian contributors andbeneficiaries. In order to build a diversified portfolio of CPP assets, thefirm 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 governedand managed independently of the Canada Pension Plan and at arm's length fromgovernments. On June 30, the CPP Fund totaled $116.6 billion, of which $18.4billion represents private investments.
 
TPG Capital is the global buyout group of TPG, a leadingprivate investment firm founded in 1992 with approximately $45 billion ofassets under management and offices in San Francisco, London, Hong Kong, NewYork, Fort Worth, Washington, D.C., Melbourne, Moscow, Mumbai, Paris,Luxembourg, Beijing, Shanghai, Singapore and Tokyo. The firm's healthcareinvestments have included Axcan Pharma, Biomet, Fenwal, IASIS Healthcare,Quintiles Transnational and Surgical Care Affiliates, among others. 
 
Mark Wiseman, senior vice president of private investmentsfor CPP Investment Board, said the company and its partner TPG "arelike-minded, long-term investors and we look forward to working together and inpartnership with management to help grow the business."
 
 
Reaction to the acquisition varied. The Wall StreetJournal noted that the transaction, ifcompleted, would be the largest leveraged buyout of the year, "and the clearestsign yet that an improving economy and healthier financing markets areincreasing private equity activity." Charles Bobrinskoy, vice chairman at ArielInvestments, a Chicago-based investment fund that is the largest holder of IMSshares, told the newspaper that it "would strongly support" the transaction.
 
 
"While we believe that IMS is a very valuable company, it isclear to us that this value will not be recognized in the public markets. Itmay be better for IMS to be a private company," Bobrinskoy told the newspaper.
 
 
But Vitaliy N. Katsenelson, a portfolio manager/director ofresearch at Investment Management Associates in Denver, had a strong negativereaction, telling MarketWatch that IMShas been "stolen from its shareholders."
 
"This company, which has virtually has no competition, hasbarriers to entry impossible for a new entry to overcome, and a cash printingmachine will be sold for about 12 times free cash flows," Katsenelson said. "IMSHealth management and board have a history of making dumb capital allocationdecisions, but this one may go down in history as their dumbest. We own theseshares and will probably hold on to them in the hope that shareholders willrefuse this offer." 


Amy Swinderman

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