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TriZetto Scales Down Unpopular Merger With IMG

Acquisitions: After original proposal alienated Wall Street, firms agree to a smaller stock swap and an alliance.


TriZetto Group Inc. said Tuesday that it has called off a much-criticized merger with IMS Health Inc., originally valued at $8.1 billion, and will instead buy a unit of IMS in a stock swap valued at $255 million.

Under the new alliance, both companies will remain independent but will work together.

TriZetto, a Newport Beach Internet health services firm, said it will exchange about 10.6 million shares for IMS subsidiary Erisco Managed Care Technologies, which sells software to managed-care companies.

In the meantime, the two parent companies will work together under a contract in which IMS will use TriZetto's HealthWeb Internet services and technology to build its own online capabilities.

The new arrangement comes after the original plan, a complex merger that confused investors, led to a sell-off of shares in both companies that reduced the value of the deal on the day it was announced to $4.7 billion. In the first two days of trading, the value dropped 71%.

Investors in both companies also complained that the upstart, new-economy TriZetto didn't fit with the old-line Westport, Conn., drug data and health-market research giant.

"This new approach retains the strategic benefits of the original transaction in a simpler form designed to be more attractive to shareholders," IMS President Victoria R. Fash said in a press release.

Executives at both companies could not be reached for comment.

News of the new deal was released after the market closed. TriZetto shares rose 75 cents Tuesday to close at $24 a share in Nasdaq trading. IMS Health shares rose 38 cents to close at $17.38 a share on the New York Stock Exchange.

The simpler partnership could generate a warmer reaction on Wall Street.

"A lot of people were looking for this type of transaction," said Christopher Brinzey of Advest Inc. "The piece they are interested in is just a small piece of IMS Health's overall business. It looks like that's what they are doing here."

Under the latest terms, TriZetto would acquire Erisco for about five times the unit's revenue of $48.2 million last year. Analysts said the price is a good one for the IMS subsidiary.

The transaction is structured so that IMS receives more stock if TriZetto's shares fall below $21 each or less stock if the price is higher than $29 a share. The purchase price will be determined by the average price of TriZetto shares over 15 days of trading, ending three days before the deal closes.

As part of the deal, IMS Health will receive one seat on TriZetto's board of directors. However, the company did not say whether it would create a new seat on its five-member board or whether a current director would depart.

Bloomberg News contributed to this story.

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