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PPD Statement Shows Sales Talks Began More Than Two Years Ago

By Jenny Callison, posted Oct 18, 2011

A preliminary proxy statement filed by Wilmington-based PPD, Inc., with the Securities and Exchange Commission (SEC) on October 14 provides a detailed narrative of the exploration and negotiation that resulted in the successful bid by The Carlyle Group and Hellman & Friedman to acquire the clinical research organization for a cash payment of $3.87 billion.

It also documents that preliminary talks about selling the company started in early 2009.

It also reveals that in the early days of PPD’s “go shop” period another company has expressed interest in purchasing PPD, although no definite offer has emerged. Morgan Stanley is charged with contacting other possible bidders during this 30-day period, which ends at midnight November 1.

In the section of the proxy statement titled Background of the Merger, the document states that various parties, including The Carlyle Group and Hellman & Friedman, approached PPD to discuss possible strategic and investment transactions.

The possibility of a sale grew more serious through discussions earlier this year, at PPD’s annual meeting in May and through conversations potential buyers conducted with individual board members.

Based on these discussions, PPD’s leadership retained Morgan Stanley to act as the company’s financial advisor and established criteria by which potential suitors would be evaluated. From late June until early July, Morgan Stanley and PPD contacted four private equity firms, including Carlyle and H&F, which met the criteria.

PPD continued to consider alternate scenarios that would keep the company an independent, public company.

The company also prepared two case statements, one outlining its business operations and including a five-year financial forecast; the other evaluating potential risks and possible outcomes if PPD were not able to fulfill its financial forecast.

Through July and August, Morgan Stanley and PPD pursued negotiations with Carlyle, H&F and other, unnamed private equity firms in an economic climate that was exceedingly volatile and unpredictable. Early in these discussions, bidders floated possible share price offers as high as $38. However, turbulence in European markets, the debt ceiling debate in the U.S., health care reform uncertainties and the reality of declining pharmaceutical research and development spending exerted downward pressures on the prices in these negotiations.

Although at first Carlyle and H&F were rival bidders, the two ultimately joined forces. Because of deteriorating market conditions, by the end of August, Carlyle had lowered its offer to about $34 per share and was looking for another equity partner, and found that partner in H&F. PPD directors continued to argue for a higher price and advantageous sale terms, including a “go shop” period after an agreement, to see if a higher bidder could be found.

PPD engaged Lazard Freres & Co. to perform a fairness assessment of the final offered share price of $33.25. Morgan Stanley, likewise, did a fairness assessment. Each report concluded that the current economic climate posed enough risks to PPD’s five-year financial forecast that the offer was a fair one.

Therefore, after almost non-stop negotiations right up to September 30, PPD agreed to the Carlyle/H&F cash bid of $33.25 per share, for a total of slightly more than $3.87 billion total.


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