PPD Agrees To Sale Worth $3.9 Billion

By Jenny Callison, posted Oct 3, 2011

Today, PPD ended speculation on its future with the announcement that it has entered into an agreement to be acquired by a pair of private equity firms.

Under the terms of the merger agreement, The Carlyle Group and Hellman & Friedman will acquire the outstanding common shares of PPD for $3.9 billion, or $33.25 per share. This price is 29.6 percent higher than PPD’s stock price at the close of trading September 30.

The company’s stock price rose almost immediately as word of the all-cash sale spread. As of 3 p.m., PPD shares were trading on NASDAQ at $32.31 per share, on volume of over 29 million shares.

PPD’s board of directors has unanimously approved the merger agreement and is recommending that PPD’s shareholders adopt it. A special meeting of the company’s shareholders will be held following the filing of a definitive proxy statement with the U.S. Securities and Exchange Commission and subsequent mailing of the proxy statement to shareholders.

“The sale of PPD to The Carlyle Group and Hellman & Friedman provides an attractive return for our shareholders, while also ensuring a secure foundation and commitment to investment, innovation and excellence for PPD clients and employees as the company builds on its 25-year history of success,” said Fred Eshelman, founder and executive chairman of PPD.

If the deal closes in the fourth quarter of 2011 as predicted, PPD’s acquisition will be the fourth-largest private equity deal of the year.

Lauren Migliore, an equity analyst at Morningstar, Inc. in Chicago, said the sale is a good strategic move for PPD. The company has no debt, making it an excellent acquisition target.

“Private equity firms have a strong interest in this industry,” she said. “Morningstar is bullish on the acquisition. The deal will help shareholders unlock the true intrinsic value of the firm on an accelerated timeline.”

According to a Bloomberg report today, the per-share price is less than the $34-$35 per share price that PPD had hoped to achieve. BB&T Capital Markets noted that the agreed-upon price is at the low end of the $33-$38 range it had forecast and less than its price target of $35.

The “go-shop” feature of the agreement leaves open the possibility of another buyer entering the arena within 30 days and pushing the sale price higher. But analysts are not holding their collective breath. Since August, equity markets have fallen and leveraged buyout costs have increased, making such buyouts harder to finance.

In its note today, BB&T Capital Markets’ downgraded PPD stock to a Hold (2) status.

“That means that we don’t believe it’s likely that a third party would enter at this point,” said James Kumpel, CFA, managing director and group head of the firm’s Healthcare Equity Research.

PPD has explored acquisition by several private equity firms, but has been choosy, Kumpel said.

“Given the fact that this company has one of the best margins in the industry, it’s not willing to be acquired by a competitor. It’s not a fixer-upper. It’s one of the biggest fish out there in the CRO (clinical research organization) sector. The new owners will use it as a vehicle for growth, not consolidation.”

PPD spokesman Ned Glascock said the two investment groups are familiar with the company and its market.

“They recognize the considerable business opportunities that exist in the CRO sector and view our company as a leader in our industry,” Glascock said. “Both firms are committed to bringing sustained growth and lasting benefits to our employees, clients and other stakeholders.”

PPD’s future status as a private company will free it from the reporting requirements of public companies and allow it to pursue longer-term goals and strategies in a less-pressured environment, Kumpel said.

“Public companies have a slew of requirements because of the Sarbanes-Oxley Act,” he said. “They have to be attentive to the quarterly expectations of shareholders and analysts. If you disappoint people for a couple of quarters, your stock price can plummet.”

The sale announcement comes two weeks after PPD announced it had hired a new CEO. Some analysts believed the appointment of Raymond Hill to lead the company decreased the possibility that it was still pursuing a sale.

Hill, who is already on the job, sees the sale as “an example of how highly respected PPD is in the industry” and “a testament to the excellent client service delivered by PPD employees and Dr. Eshelman.”

Ultimately, Wilmington residents and business owners want to know what the sale will mean for the community. PPD, headquartered in Wilmington, is the city’s seventh-largest employer. It has offices in 44 countries and employs 11,000 around the world.

Asked if PPD’s sale would mean any significant changes for the company, Glascock said, “PPD does not currently anticipate any changes in the day-to-day operations of the business, and we remain completely focused on our current objectives and strategy – including our commitment to be a good corporate citizen in the local communities where our employees live and work.”

But some changes are likely, predicted Edward Graham, a professor of finance at UNCW.

“I would not be surprised to see top executives move out in the next few years, and maybe even the headquarters be relocated, but PPD will still have an economic presence in Wilmington,” Graham said.

“PPD is not going to do an Atlantic Coastline,” Graham predicted, referring to the overnight move of the railroad’s operations from Wilmington to Jacksonville, Fla., in the 1950s. “But with the acquisition, PPD has access to new expertise and capital, and that will influence the company’s decisions over time.”


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