The board of directors at Amicas Inc. (NSDQ:AMCS) is urging shareholders to reject an unsolicited buyout offer from Merge Healthcare Inc. (NSDQ:MRGE), calling it "illusory" and "risky."
The Boston-based imaging data management provider already has a roughly $217 million deal in place with private equity firm Thoma Bravo LLC, which offered last Christmas Eve to pay $5.35 per share for Amicas. The Merge offer — its sixth proposal to buy Amicas — of $6.05 per share would top that, but the Amicas board said in a statement that the offer is "highly conditional" and doubted whether Merge could pull off the deal.
"Merge’s highly-conditional proposal is (i) dependent on third-party financing, (ii) subject to a "reverse break" fee, which essentially gives Merge a $10 million "option" to buy Amicas; (iii) subject to a number of additional conditions, the satisfaction of which are within Merge’s control, and (iv) has been characterized as Merge’s "best and final" proposal," according to the statement. "Given the highly-conditional nature of Merge’s most recent proposal, the Amicas board of directors believes that the Merge proposal is illusory and risky to Amicas stockholders."
The Amicas board noted that the cash for the Thoma Bravo buyout "is fully financed and guaranteed by Thoma Bravo and other first-tier private equity funds and is not dependent on unguaranteed, third-party financing" and that the equity firm was set to close the deal as planned Feb. 19. The board said it believes "the Thoma Bravo Merger provides Amicas stockholders with immediate and certain cash value."
"Amicas is confident that the Thoma Bravo Merger can be completed in a timely manner immediately following stockholder approval at the Special Meeting of Amicas Stockholders scheduled to be reconvened on March 4, 2010," according to the statement.
The board’s list of problems with the Merge deal is lengthy:
- "The Merge proposal relies upon future completion of a high-yield debt financing that is subject to numerous conditions, including conditions related to Merge’s financial position;
- Amicas cannot enforce the financial commitments of Merge’s lenders;
- The potential for termination due to a Material Adverse Change ("MAC") at either company creates financing and closure risk;
- Merge’s proposal amounts to a low-cost purchase option on Amicas’ business, providing very limited recourse for Amicas should the transaction fail, and providing Merge with very little incentive to move forward should Merge choose not to proceed with its proposal;
- Merge is a microcap company with limited resources and experience and no demonstrated track record of profitable operations. This increases the likelihood of a MAC and compromises Merge’s ability to complete the contemplated $200 million high-yield debt financing;
- Merge requires that Amicas terminate the Thoma Bravo Merger and pay the break-up fee of $8.6 million, an amount Amicas believes it is unlikely to recover from Merge, with no assurance the Merge proposal can subsequently be completed;
- Unlike the guaranteed performance included in the Thoma Bravo Merger, Amicas would have little ability to enforce the proposed transaction with Merge. This would impose significant risk of a failed transaction on Amicas stockholders;
- Unlike Thoma Bravo, Merge will not agree to guarantee funding of the transaction. Despite numerous requests by Amicas, Merge refuses to provide for a substantial break fee in lieu of guaranteed funding. In addition, Merge has consistently refused to escrow funds to secure a reverse break-up fee; this implies a lack of commitment and raises concern about the viability of Merge’s highly-conditional, contingent proposal;
- Merge’s proposal requires that approximately 62% of the issued and outstanding shares of Amicas common stock tender into a Merge offer. This is significantly less favorable than the simple majority vote required for the Thoma Bravo Merger;
- Merge has refused to provide Amicas with access to diligence materials, despite the fact that the financing is conditioned on the absence of a combined company MAC. This has prevented the Amicas Board from fully evaluating the risks of the transaction on behalf of Amicas stockholders;
- The Merge proposal would require additional regulatory review and approvals from the SEC and other agencies, which may be subject to additional risk given the recent SEC investigation into Merge’s financial reporting practices. In addition, the 2009 audited financial statements for both Amicas and Merge would have to be completed and filed with the SEC, creating further delay and risk; and
- The Board believes that Merge’s primary motivation is as a competitor and is designed to interfere with the current merger agreement between Amicas and Thoma Bravo and damage Amicas, as evidenced by Merge’s decision to seek to advance its highly-conditional and illusory proposal at such a late stage in the transaction process between Amicas and Thoma Bravo."
The board also said the its financial advisor, Raymond James & Associates Inc., reviewed offers from 26 potential acquirers and found only one to be better that the Thoma Bravo offer; that party later withdrew its offer.
"The company received no other proposals during the go-shop period that the Amicas board determined to be superior to the Thoma Bravo Merger," according to the statement.