DURHAM, N.C. (AP) – The head of Quintiles Transnational Corp., which tests medical devices and drugs for other companies, is parting ways with shareholders – to the expected greater profit of bothsides.
Quintiles shareholders will vote Thursday on a leveraged buyout by the company’s chairman and founder that will take the company private and its shares off the Nasdaq Stock Market.
The mutual-fund companies and hedge funds that are Quintiles’ five largest shareholders declined to say how they would vote the shares they controlled.
Shareholders will pocket $14.50 per share, about 75 percent more than the closing market price of their shares the day before chairman Dennis Gillings put the company in play with an initial, lower offer nearly a year ago.
With revenue of $1.99 billion last year, the company is one of the world’s largest in its field. It had about 15,500 employees at the beginning of the year.
Gillings founded Quintiles in 1982, has been its chairman ever since and ran the company as its chief executive officer until April 2001.
He said he was motivated to buy out the company “by his concern that Quintiles’ share price did not intrinsically reflect the growth prospects and value,” the company said in its proxy filing with the Securities and Exchange Commission.
Gillings did not respond to requests for an interview in advance of the shareholder meeting.
A health care analyst with Standard & Poor’s Ratings Services, which judges the creditworthiness of companies and their bonds, agrees prospects for Quintiles are bright.
The expected breakthroughs in genomics, chemistry and other new drug discovery techniques suggest drug companies will have more and more compounds that look promising but that need testing in humans to prove they’re safe and effective, S&P’s David Lugg said.
Quintiles has “been through a rough patch in the last couple of years, but it’s providing services to very wealthy, very stable pharmaceutical companies,” he said.
But Standard & Poors is warning lenders that raising the money to pay off shareholders will heavily burden Quintiles with debt. S&P rates the debt at “junk” status, which means many pension funds are barred from the high-risk investment and the company will have to pay lenders higher interest.
The $1.75 billion buyout, plus about $140 million in transaction fees and expenses, will be financed with at least $586 million in cash Quintiles has on hand and $450 million in borrowings. Gillings’ arrangements with investors include about $415 million from a subsidiary of Chicago’s Bank One, $390 million from a syndicate of lenders arranged by Citicorp North America Inc., and $95 million from Gillings, his family and a family foundation.
Besides being one of the world leaders in running human trials of prospective medicines and medical devices, Quintiles conducts market research and writes up analyses to support business decisions by health care companies. It offers consulting services to governments and other organizations worldwide. Quintiles also keeps a global sales force under contract that can be rented out to pharmaceutical or biotech companies.
In 2000, Quintiles took the controversial step of establishing its PharmaBio Development subsidiary to make investments in drug development. Stock analysts said Quintiles’ decision to own a piece of developing products, rather than pocket a fee for testing services, made it difficult to gauge the company’s value and led to Gillings’ decision that his company was undervalued.
In its proxy – the document that tells shareholders in detail what’s happened in the lead-up to the vote – the company says Gillings never participated in any discussions by the board of directors during the months after his initial bid was offered and then rejected as too low.
Quintiles says the buyout is the best business decision for the company. It says a panel of three directors not employed by Quintiles hired investment banking firm Morgan Stanley and outside attorneys to negotiate with a handful of other interested buyers.
Ultimately, Gillings offered shareholders the most money and he already knew the company’s inside secrets – details that would otherwise have to be shared with a prospective buyer, Quintiles said.
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On the Net
Quintiles Transnational: http://www.quintiles.com
