June 28, 2016 — McKesson Corp. and Change Healthcare Holdings Inc., a provider of software and analytics, network solutions and technology-enabled services, announced the creation of a new healthcare information technology company. The entity will combine substantially all of Change Healthcare’s business and the majority of McKesson Technology Solutions (MTS) into a new company with fiscal year end March 31, 2016 pro forma combined total annual revenues of $3.4 billion. McKesson plans to refocus its efforts on its core pharmacy and medical supply business, and follows a year of financial losses and cost-cutting measures.
McKesson said it will contribute the majority of its technology solutions businesses to the new company, with the exception of RelayHealth Pharmacy and its Enterprise Information Solutions (EIS) division, which will be retained by McKesson. McKesson said it will explore strategic alternatives for its EIS division. McKesson offers health IT solutions for an electronic medical record (EMR) enterprise imaging and reporting, radiology RIS-PACS, cardiovascular information systems (CVIS), oncology information systems, echocardiography, ECG management, and several other medical subspecialty reporting and imaging systems. Its IT division also offers solutions for inventory management, cath lab hemodynamics reporting, remote image sharing systems, vendor neutral archive (VNA), analytics and a third-party interoperability platform to help connect systems from various IT vendors.
McKesson said the new organization brings together the complementary strengths of its IT division and Change Healthcare to deliver a broad portfolio of solutions. The vendor said the new company will help lower healthcare costs, improve patient access and outcomes and make it simpler for payers, providers and consumers to manage the transition to value-based care. As a separate entity singularly focused on healthcare technology and technology-enabled services, McKesson said the new organization will be positioned to better respond to customer needs and deliver next-generation innovations.
“This is a bold, innovative transaction that creates a company with an enhanced ability to help customers address their increasingly complex financial and clinical challenges,” said John Hammergren, chairman and chief executive officer, McKesson. “The new company will establish a more efficient suite of end-to-end payment and claims solutions, as well as clinical capabilities, while unlocking the value of our MTS businesses in a tax-efficient manner. We look forward to partnering with Change Healthcare’s management team and employees to create this new enterprise and to help customers reduce complexity, lower costs and ultimately provide better care.”
“The combination of these two entities comes at a transformational time in U.S. healthcare,” said Neil de Crescenzo, president and chief executive officer, Change Healthcare. “Together we will create significant value by bringing together complementary capabilities from both organizations to deliver innovative new solutions for customers, create opportunities for team members at a leading healthcare technology company, and drive advancements that address the three critical areas of cost, quality and outcomes across the healthcare sector.”
The new company will be able to offer health plans and providers a comprehensive suite of end-to-end financial and payment solutions and technologies, McKesson said. In addition, customers will benefit from solutions that help them manage administrative and clinical complexity as they navigate the transition to value-based care. Patients will have better tools that allow them to make more informed decisions, helping them maximize their healthcare dollars and receive high quality care.
Transaction Terms and Structure
Under the terms of our agreement, McKesson will contribute the majority of its McKesson Technology Solutions businesses to the new company. Change Healthcare will contribute all of its businesses to the new company, with the exception of its pharmacy switch and prescription routing business, which will be owned separately by the current Change Healthcare stockholders. Change Healthcare is currently majority-owned by Blackstone, a global private equity firm.
McKesson will own approximately 70 percent of the new company, with the remaining equity stake held by Change Healthcare stockholders, which includes Blackstone and Hellman & Friedman. McKesson and Change Healthcare stockholders will jointly govern the new company and John Hammergren will serve as chairman. Neil de Crescenzo will serve as chief executive officer, joined by a management team comprised of leaders from both McKesson and Change Healthcare.
The companies said creating a new company is expected to generate in excess of $150 million in annual synergies by the second year following the close of the transaction. The new company has received commitments for $6.1 billion of funded debt related to this transaction, with proceeds to be used to repay approximately $2.7 billion of existing Change Healthcare debt, make $1.25 billion in cash payments to McKesson and make $1.75 billion in cash payments to Change Healthcare’s stockholders, with the remainder to be used for transaction-related expenses.
The transaction is subject to closing conditions, including antitrust clearance and the completion of audited financial statements of the MTS businesses being contributed to the new company, and is expected to close in the first half of calendar year 2017. The agreement provides that McKesson and Change Healthcare will take steps to launch an initial public offering in the months following the close of the transaction, subject to market conditions. Thereafter, McKesson expects to exit its investment in the new company in a tax-efficient manner.
For more information on the transaction, McKesson created a website at www.healthtechtransformation.com