SXC Health Solutions Corp. (NASDAQ:SXCI) is strengthening its pharmacy benefit management services with the purchase of Catalyst Health Solutions Inc. (NASDAQ:CHSI) for about $4.4 billion in cash and stock.
The transaction is expected to be highly accretive to SXC's non-GAAP earnings in 2013, which excludes transaction-related amortization expected to be about $200 million in the first twelve months after closing.
The boards of directors of both the companies have unanimously approved a definitive merger agreement. The merger will double the number of prescription volume and the combined company will be an organization with $13 billion in revenue, which will be headquartered in Lisle, Illinois and will maintain a presence in Rockville, Maryland.
Under the terms of the agreement, Catalyst shareholders will receive $28.00 in cash and 0.6606 shares of SXC stock for each Catalyst share, which implies a purchase price of $81.02 per Catalyst share and a premium of about 28% based on the closing stock prices of SXC and Catalyst on April 17.
Upon closing of the transaction, SXC shareholders are expected to own about 65% of the combined company, and Catalyst shareholders are expected to own about 35%. The merger will combine and create leading provider of pharmacy benefit management services and health care information technology solutions.
The transaction, which is subject to approval by SXC and Catalyst shareholders, U.S. antitrust approval and other customary closing conditions, is expected to close in the second half of 2012. SXC has secured fully committed financing from J.P. Morgan Chase Bank, N.A. for the cash portion of the transaction.
Mark Thierer, Chief Executive Officer of SXC, will serve as Chairman and CEO of the combined organization, and Jeff Park will be its EVP and Chief Financial Officer. After the close of the transaction, the SXC Board of Directors will include two current Catalyst directors.
David Blair, Chairman and Chief Executive Officer of Catalyst, has committed to provide ongoing support to the combined company to ensure a seamless and successful integration.
The combined company expects to achieve about $125 million of annual cost synergies over the first 18 to 24 months after closing through improved scale and operating leverage.
The combined company expects to incur about $40 million to $45 million of transition expenses to achieve these annual synergies. SXC expects annual interest expense to be about $70 million due to financing the transaction with $1.7 billion in debt.
Upon closing, the combined company will have a strong balance sheet and attractive cash flow, giving it substantial financial flexibility to pursue continued growth initiatives while paying down debt.
SXC and Catalyst will each release first quarter 2012 unaudited financial results on May 3. Both companies reaffirmed their full-year 2012 guidance excluding the costs related to this proposed transaction, which for SXC is expected to be about $25 million.
SXCI is trading up 10.15% at $88.41 on Wednesday, while CHSI trades 32.33% higher at $84.08.