Misys shares leapt 20 per cent as it unveiled a merger of its healthcare software division with US peer Allscripts. The combined company intends to take advantage of Misys' customer base of physicians to sell Allscripts' electronic health records software, a much faster-growing market than Misys' practice management software.
The new company will be 54.5 per cent owned by Misys and 45.5 per cent by Allscripts shareholders, and will be listed on Nasdaq, with expected annual revenues of around $650m. Misys will pay Allscripts $330m (£165m) in return for the controlling stake, money that will be immediately redistributed to Allscripts shareholders as a dividend. Allscripts shares rose around 8 per cent in pre-market trading.
To fund the cash element, Misys has arranged a new banking facility and will raise £75m via an equity placing at 175p a share, a 24 per cent premium to yesterday's closing price, guaranteed by its largest shareholder, ValueAct Capital.
Misys chief executive Mike Lawrie says the deal "transforms Misys into a growth company", with sales increasing by 7 to 9 per cent, rather than flat to 2 per cent growth, within two years. This new growth profile also means Misys will no longer pay a dividend after this year's final payment.
Mr Lawrie says that of the 113,000 US physicians using its practice management systems, 90,000 are yet to invest in electronic health records. As well as cross-selling potential, "Allscripts-Misys" is expected to create annual savings of $25m to $30m within the next three years, largely from "soft costs" such as sales and marketing. No products will be discontinued, although Mr Lawrie cites savings in advance from developing new products that Allscripts already sells. It will also be earnings-enhancing for Misys from the first year of its operation.
Allscripts shares have fallen 55 per cent since the beginning of 2008. Mr Lawrie notes that while he began discussions with Allscripts a year ago, the recent "recalibration" in equity markets "has made this transaction possible from a financial standpoint". In its last results, Allscripts was growing sales at 24 per cent and earnings at 59 per cent, although the delayed release of a new product had depressed sales.
The transaction creates some financial uncertainties for Misys, including "some issues" in Misys Healthcare during the fourth quarter, as customers digest the deal, and even greater complications to Misys already-confused tax structure. Nonetheless, Misys also revealed a detailed trading statement that showed revenues to date up 6 per cent on last year, with banking sales up 11 per cent, treasury and capital markets sales up 7 per cent and healthcare revenues down 4 per cent. "By and large we are ahead of where I thought we were going to be... a year ago," says Mr Lawrie.
Panmure Gordon says its "bottom of the range forecasts are underpinned by the guidance statement". It expects earnings of 10.2p this year and 10.9p in 2009.
