Under the terms of the agreement, PharmaNet will be acquired by JLL in a two-part transaction. First, JLL will commence a tender offer to purchase all of PharmaNet’s outstanding shares at a price of $5 per share in cash. Second, the tender offer (expected to close at the end of the first quarter 2009) will be followed by a merger in which any untendered shares of common stock will be converted into the right to receive the same cash price per share paid in the tender offer.
“JLL Partners is very well-regarded—20 years experience, $4 billion under management—and they have a philosophy of working with high quality management teams. This is a situation where they respect the management, they respect the company and what we’ve done, and they want to help us build upon that. We have a partner who believes in us,” said PharmaNet president and CEO Jeffrey McMullen.
The transaction values the company’s stock at approximately $100 million. JLL will finance the deal with a $250-million equity commitment, which includes funds to retire the $144 million principal amount of PharmaNet’s outstanding convertible notes.
The $5-per-share tender offer is a significant increase over PharmaNet’s recent share price, which had hovered around $1.30. The company’s share price jumped 250% to $4.71 following the acquisition announcement.
“We’ve been a little frustrated in the past year because we had a pretty aggressive plan with ideas to grow the business and to expand our services but with what we’ve been dealing with, with the stock price being where it was, we were kind of hindered from moving on those strategic initiatives,” McMullen said. “Now we have a partner who would like to support those initiatives. We can get back on track to accomplish some of those things that I think are important to grow the company.”
This transaction follows several years of ups and downs for Princeton, N.J.-based PharmaNet.
The company was purchased by SFBC International in December 2004 in an effort by SFBC to move out of early clinical research into phase II-IV. The company then faced two years of media and government scrutiny concerning its safety, patient recruitment, financial and hiring practices. In an effort to escape its past, the company officially changed its name in 2006 from SFBC to PharmaNet Development Group.
In the summer of 2008, PharmaNet released a positive second quarter earnings report, but, in September, the company’s cancellation rate for late-stage projects jumped to 32.7%, from 8.4% in July, forcing the company to forecast a loss for the full year 2008.
Over the course of 2008, PharmaNet’s share price plunged 97% from $39.19 in January to around $1.10 in December, at which time the company began working with a financial advisor from USB Investment Bank to explore strategic alternatives, including the potential sale of the company.
“It’s been a bit of a stressful period. Stressful, but, quite frankly, I knew that we had solutions available, and it was really finding the best solution for shareholders, clients and employees. I think we’ve clearly done that,” McMullen said. “Now we kind of press the restart button and get back on track with some of those initiatives that we’ve not been able to do in the last year and go from being a little bit on the defense to being on the offense.”