Planned Merger of TriZetto, IMS Appears Doomed
The planned merger of an Internet health services firm and a old-line drug data provider, once valued at $8.1 billion, is likely to be scuttled by angry investors convinced the pair are mismatched and by the stock market’s general decline.
TriZetto Group Inc., the Newport Beach upstart, and IMS Health Inc., the Connecticut giant, said they are reevaluating the deal, looking for alternatives to the stock swap announced March 29. Wall Street had pummeled the companies’ shares mercilessly since then, cutting the deal’s value by 71%.
Analysts doubt the marriage of IMS and TriZetto, a fast-growing company with a volatile stock, can be saved. The market’s recent devaluation of technology stocks just exacerbated the culture clash between the companies’ disparate investor groups, they said.
Although the possible collapse of the merger could signal a wave of called-off deals following the stock market decline, bankers said that might be because some mergers already were in trouble--and companies now can blame market conditions to abandon them.
Merger specialists doubt the recent volatility will have much long-term effect.
“It may slow things down in the very short term as people catch their breath,” said Greg Williams, a lawyer at Brobeck, Phleger & Harrison, which specializes in tech companies.
“Management of the acquirer has to say, ‘Are we doing the right thing and are we paying the right price?’ But ultimately, deals will get done,” he said. “It’s just a matter of what people will pay.”
Investors embraced news of the TriZetto-IMS reappraisal, sending shares of TriZetto up 34% on Wednesday to close at $22.75 on Nasdaq. Shares of IMS rose 6%, closing at $17.19, on the New York Stock Exchange.
“Oil and water don’t mix,” said Charles Trafton, an analyst with Adams Harkness & Hill Inc. in Boston. “Investors that buy steady-eddie companies like IMS don’t want anything to do with TriZetto. The people who own TriZetto would never buy a stodgy old company like IMS. IMS is the anti-Internet stock.”
When the TriZetto-IMS deal was announced, it was framed as a way to use the Orange County company’s technology to parlay IMS’ dominance in pharmaceutical research into an electronic commerce bonanza.
IMS needed to dress up its consistent success with some “new-economy” chic, analysts say. Despite recording steady profit and $1.4 billion in revenue last year, its stock has fallen 45% in the last year.
TriZetto, formed in 1997, went public only in October and swiftly grew into a paper giant. Before the merger was announced, its shares had soared 545%, but the price has since seesawed as low as $6.50 and as high as $91.25 a share. It had a balance sheet synonymous with risky Internet ventures: soaring sales matched by big losses.
Under the merger’s original terms, TriZetto technically would acquire IMS by trading 0.4655 share for each IMS share, but IMS shareholders would own 88% of the combined company.
Investors, confused by the merger’s complex structure, which also involved the issuance of three new stocks, responded by fleeing. The day the deal was announced, shares in both companies plummeted so far that the value of the transaction was reduced 43% to $4.65 billion.
“I’ve not spoken to a single stockholder who likes the deal,” said Benjamin Rooks, an analyst at CIBC World Markets. “The question is, do they sweeten the pot for IMS stockholders or do they just call it off?”
IMS and TriZetto executives would not specify what options they were discussing or when the deal’s outcome may become certain.
Analysts expect the companies to ditch a formal merger for a strategic alliance in which TriZetto acquires the use of IMS software and IMS links with customers through TriZetto’s HealthWeb portal. Under the deal’s terms, TriZetto would get a $200-million breakup fee if the merger does not go through, so the Newport Beach company also might come away with cash, analysts said.
Times staff writer Debra Vrana contributed to this report.
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Undone Deal?
IMS Health and TriZetto Group are reevaluating a planned merger after their stock prices plunged, shaving 71% off the value of the deal. Weekly closes and latest:
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IMS Health
Wednesday: $17.19, up 94 cents
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TriZetto Group
Wednesday: $22.75, up $5.75
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Note: IMS Health trades on the NYSE; TriZetto Group trades on Nasdaq.
Source: Bloomberg News
