SXC Health Solutions Corp. and Catalyst Health Solutions, Inc. today announced that their Boards of Directors have unanimously approved a definitive merger agreement under which SXC and Catalyst will combine in a cash and stock transaction valued at approximately $4.4 billion. 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 approximately 28% based on the closing stock prices of SXC and Catalyst on April 17, 2012.
The transaction will join SXC’s industry-leading pharmacy benefit management (PBM) tools, technology and expertise with Catalyst’s local and collaborative client-centric PBM business model, creating a leading independent provider of PBM solutions. Together, SXC and Catalyst will provide plan sponsors, members and physicians with a comprehensive suite of customized solutions to reduce pharmacy and healthcare costs and improve patient outcomes. Upon completion of the transaction, 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. SXC is also committed to Catalyst’s industry-recognized approach to client service and intends to maintain and expand Catalyst’s proven “Centers of Excellence” strategy.
The transaction is expected to be highly accretive to SXC’s non-GAAP earnings in 2013, which excludes transaction-related amortization expected to be approximately $200 million in the first twelve months after closing. The combined company expects to achieve approximately $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 approximately $40-45 million of transition expenses to achieve these annual synergies. SXC expects annual interest expense to be approximately $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.
“This is an extremely compelling combination that brings together SXC’s industry-leading tools and technology with Catalyst’s full-service PBM, best-in-class service and growing client base to create a company that is even better positioned to compete in the marketplace,” said Mark Thierer, Chairman and Chief Executive Officer of SXC, who will continue in that role in the combined company. “SXC and Catalyst have become two of the fastest growing independent PBMs because we share a client-centered approach to lowering healthcare costs and improving the lives of our members. By joining forces, we will be able to accelerate our shared goal of providing affordable and high quality healthcare solutions that enhance value for employer, health plan and government customers.” Mr. Thierer continued, “The combined company’s increased scale and unique value proposition, which is centered on flexibility and customized offerings, will create significant opportunities to broaden our ability to serve the needs of our clients and members, further enhancing our growth potential and creating value for all of our shareholders.” “Catalyst has long been a distinguished leader in our industry, and the combined company will continue to provide the same high quality, localized approach and service to customers for which Catalyst is known,” said David T. Blair, Chairman and Chief Executive Officer of Catalyst. “This transaction will create significant benefits for our clients through a broader range of product offerings, more effective cost management, and increased investment in innovative programs and technologies.” Mr. Blair continued, “Catalyst has achieved enormous success over the past 10 years and, while we are confident in our future prospects as a standalone company, the opportunities presented by this combination are more compelling. This transaction provides attractive and immediate value to Catalyst shareholders, as well as the ability to participate in the significant upside potential of the combined company. In addition, this transaction enhances our ability to serve the needs of our clients and positions the combined company for long-term success in our rapidly evolving industry.” Mr. Thierer will serve as Chairman and CEO of the combined organization, and Jeff Park will be its EVP and Chief Financial Officer. Mr. Blair has committed to provide ongoing support to the combined company to ensure a seamless and successful integration.
Following the close of the transaction, the SXC Board of Directors will include two current Catalyst directors.
Strategic Benefits of the Transaction — Highly Complementary Businesses with Best-In-Class Services and Solutions. SXC’s industry-leading PBM tools and technology and specialty pharmacy offerings are complementary to Catalyst’s market-leading client service and clinical model that emphasizes local solutions and member choice. With flexible and customized services and solutions, the combined company will be better positioned to meet the needs of a more diverse client base that includes large employers, managed care organizations, state and local governments, hospice, fee-for-service Medicaid, long-term care, and workers’ compensation clients, among others.
— Enhanced Size and Scale to Deliver More Cost-Effective Solutions.
The combined company will leverage its enhanced size and scale to create more efficiency in the supply chain and generate greater cost savings for plan sponsors and members. The combined company will cover approximately 25 million members, with annual prescription volume of more than 200 million adjusted PBM scripts.
— Strong Position in Key Growth Areas. Together, SXC and Catalyst will be uniquely positioned to capitalize on key areas of growth in the evolving healthcare market, including positive trends in drug utilization, greater member engagement, specialty pharmacy benefit programs, new biosimilar introductions, home delivery, generic utilization, and increases in the number of insured lives.
— Well Positioned for Healthcare Reform. With the impending U.S.
Supreme Court decision surrounding the Affordable Care Act, the combined company is well positioned to capitalize on the changes, regardless of the outcome. SXC has a strong fee-for-service Medicaid offering, as well as a complete Medicare and Managed Medicaid product line. Additionally, the company’s technology tool set is being used today to help build out health exchanges, ACO’s and PCMH models throughout the country.
Transaction Terms 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 they own upon closing of the transaction. Based on the closing price of SXC on April 17, 2012, the stock component is valued at $53.02 per share, which brings the total consideration per share to Catalyst shareholders to $81.02. Upon closing of the transaction, SXC shareholders are expected to own approximately 65% of the combined company, and Catalyst shareholders are expected to own approximately 35%.
Financing and Approvals SXC has secured fully committed financing from J.P. Morgan Chase Bank, N.A. for the cash portion of the transaction.
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.
Financial Guidance SXC and Catalyst will each release first quarter 2012 unaudited financial results on May 3, 2012. Both companies today reaffirmed their full-year 2012 guidance excluding the costs related to this proposed transaction, which for SXC is expected to be approximately $25 million.
Advisors J.P. Morgan acted as lead financial advisor and Barclays acted as financial advisor to SXC, and Sidley Austin LLP acted as its legal counsel. Goldman, Sachs & Co. acted as lead financial advisor and Citi acted as financial advisor to Catalyst, and Milbank, Tweed, Hadley & McCloy acted as its legal counsel.
