On 05-Nov-09 IMS Health Inc, the US healthcare information company, announced it had signed an agreement to be acquired by TPG Capital and the Canada Pension Plan Investment Board for USD 22 cash a share. The agreement was unanimously approved by the IMS Board, and comes after IMS announced on 20-Oct-09 it was exploring a variety of strategic alternatives for the company. The transaction has fully committed financing, consisting of a combination of equity and (principal loan and mezzanine) debt financing provided by Goldman Sachs. Completion of the deal is subject to IMS shareholder approval, regulatory approvals and customary closing conditions and is expected to close by the end of the first quarter of 2010.

Although the Merger Agreement document has not been published yet, we believe there is a very high chance of deal closure of this first large LBO deal since 2008:

* Shareholder approval: Given that after its strategic review, IMS has concluded that a sale is the best option, shareholders will be inclined to tender their shares in the offer: the offer represents premiums of firstly 50% over the $14.67 closing share price on 16-Oct-09, the last trading day prior to the public speculation that IMS was considering its strategic alternatives and secondly 31% over the $16.81 closing share price on 04-Nov-09, the last trading day before the definitive offer was tabled. Ariel Investments, IMS' largest shareholder with 7.1% of IMS shares, has already been quoted that they would back the buyout.
* Regulatory approval: Given the financial nature of the bidders, who have negligible presence in the medical & pharmaceutical intelligence market where IMS is active, we believe the regulatory approvals are pure formalities for this deal to close.

We believe the current $21 price or 4.7% spread is currently driven by firstly the fact that the merger agreement has not been filed yet and secondly that investors remain sceptical of the PE nature of the bidders (with reference to high profile PE acquisitive bids blowing up in 2008). However we believe that as a first major PE/LBO transaction in a while, the bidders are committed to the closing of this deal and that all conditions should be fulfilled. 

Given the short duration of the deal to close, we would be buyers at/under the $21 level to realize the 4.7% net spread (annualized 14% return assuming Mar-10 closing).