McKesson, Change Healthcare To Form New Healthcare Information Tech Company

(RTTNews) - McKesson Corp. (MCK) and Change Healthcare Holdings Inc., a provider of software and analytics, network solutions and technology-enabled services, announced the creation of a new healthcare information technology company. Separately, McKesson said that it is exploring strategic alternatives for its Enterprise Information Solutions or EIS business, a division of McKesson that provides core hospital information systems.

McKesson noted that the new entity will combine substantially all of Change Healthcare's business and the majority of McKesson Technology Solutions or MTS into a new company with fiscal year end March 31, 2016 pro forma combined total annual revenues of $3.4 billion.

McKesson noted that the new company will be able to offer health plans and providers a comprehensive suite of end-to-end financial and payment solutions and technologies. In addition, customers will benefit from solutions that help them manage administrative and clinical complexity as they navigate the transition to value-based care.

Under the terms of our agreement, McKesson will contribute the majority of its McKesson Technology Solutions businesses to the new company, with the exception of RelayHealth Pharmacy and its Enterprise Information Solutions (EIS) division, which will be retained by McKesson.

Change Healthcare will contribute all of its businesses to the new company, with the exception of its pharmacy switch and prescription routing business, which will be owned separately by the current Change Healthcare stockholders. Change Healthcare is currently majority-owned by Blackstone.

McKesson will own approximately 70% of the new company, with the remaining equity stake held by Change Healthcare stockholders, which includes Blackstone and Hellman & Friedman. McKesson and Change Healthcare stockholders will jointly govern the new company and John Hammergren will serve as chairman. Neil de Crescenzo will serve as chief executive officer, joined by an experienced management team comprised of leaders from both McKesson and Change Healthcare.

The transaction unlocks value for McKesson and Change Healthcare stockholders by creating a new company with a singular focus on healthcare technology and technology-enabled services, and is expected to generate in excess of $150 million in annual synergies by the second year following the close of the transaction.

The new company has received commitments for $6.1 billion of funded debt related to this transaction, with proceeds to be used to repay approximately $2.7 billion of existing Change Healthcare debt, make $1.25 billion in cash payments to McKesson and make $1.75 billion in cash payments to Change Healthcare's stockholders, with the remainder to be used for transaction-related expenses.

The transaction is subject to closing conditions, including antitrust clearance and the completion of audited financial statements of the MTS businesses being contributed to the new company, and is expected to close in the first half of calendar year 2017.

The agreement provides that McKesson and Change Healthcare will take steps to launch an initial public offering in the months following the close of the transaction, subject to market conditions. Thereafter, McKesson expects to exit its investment in the new company in a tax-efficient manner.