Game Over

I got the call this morning from AMICAS, just before the press-release went out.  Game over, per the Board of Directors. Merge wins.  Here is the story from the financial news wires:

BOSTON and MILWAUKEE, March 5 /PRNewswire-FirstCall/ -- AMICAS, Inc. (Nasdaq:AMCS - News) and Merge Healthcare Incorporated (Nasdaq:MRGE - News) today announced that they will enter into a definitive merger agreement (the "Merge Acquisition Agreement") pursuant to which Merge will acquire all of the outstanding shares of AMICAS for $6.05 per share in cash, or an aggregate of $248 million. The Board of Directors of AMICAS has unanimously voted to terminate AMICAS' previously announced agreement with an affiliate of Thoma Bravo, LLC and to enter into the Merge Acquisition Agreement. Merge's $6.05 per share cash purchase price represents a premium of approximately 13% percent over the $5.35 per share price contemplated by the prior agreement.


Together, AMICAS and Merge will become a leading global healthcare IT provider, bringing together the best employees, customers and solutions in a broad array of image and information management and related solutions. The combined company's solution portfolio will range from comprehensive automation solutions for cardiology and radiology providers to enterprise content management solutions for IDN's to OEM solutions for health IT applications to trial, site and patient management solutions for pharmaceutical, biotechnology, medical device and contract research organizations.


The $6.05 per share cash purchase price represents a premium of approximately 38.8 percent over AMICAS' volume-weighted average share price during the 30 trading days ending December 24, 2009, the last trading day prior to the public announcement of AMICAS' merger agreement with Thoma Bravo, and a 55.8 percent premium over AMICAS' volume-weighted average share price during the 90 trading days ending December 24, 2009.


The companies expect to promptly execute a definitive Merge Acquisition Agreement for a two-step transaction. The first step will be a cash tender offer for all of AMICAS' outstanding common stock, and the tender offer is expected to commence in about two weeks. The second step will be a merger pursuant to which any untendered shares of AMICAS common stock will be converted into the right to receive the same $6.05 per share cash price. The tender offer and merger will be subject to certain closing conditions, including successful tender of a minimum number of shares of AMICAS common stock, antitrust clearance and other regulatory approvals, and is expected to close in the second quarter of 2010. There is no financing condition to the consummation of the transaction.


Stephen Kahane, MD, president, chief executive officer, and chairman of AMICAS, said, "Throughout this process, AMICAS' Board has been focused on maximizing stockholder value and our agreement with Merge Healthcare demonstrates that commitment. We are proud of what we have built at AMICAS, including the solutions we deliver, the intimate partnerships we have with our customers and the excellent reputation we have in the marketplace. This transaction with Merge validates the strength of the business we have built. We look forward to working with Merge to complete the transaction as expeditiously as possible."


"We are very pleased with this significant positive step toward successfully combining these two great companies," said Justin Dearborn, Merge CEO. "Merge and AMICAS have strong histories of innovation in medical imaging software, experienced employees and engaged customers. As a combined company, our suite of health IT solutions will encompass a broad range of medical and biopharmaceutical imaging solutions to meet the needs of today's medical imaging providers. In addition, Merge's OEM and CAD technologies, international and eCommerce distribution channels, and additional market segments such as clinical trials provide new opportunities for AMICAS products and customers. On behalf of everyone at Merge, I look forward to welcoming and working closely with the AMICAS team."


Merge has obtained $240 million of debt and equity commitments to finance the transaction. Merge and Morgan Stanley Senior Funding, Inc. have executed a definitive commitment letter for $200 million of debt financing. Merge also has $40 million of equity purchase commitments from private investors for the issuance of Merge common stock and a new class of Merge non-voting preferred stock.


Prior to entering into the Merge Acquisition Agreement, AMICAS will terminate its previous merger agreement. In accordance with that agreement, AMICAS will pay an affiliate of Thoma Bravo a termination fee of $8.6 million, half of which will be reimbursed by Merge.

Let's read between the lines.  Dr. Kahane and the Board had no choice.  The moment the Thoma Bravo offer was revealed, a dozen sharks law-firms announced "inquiries" into the propriety of the deal.  In other words, some investor thought Bravo's offer of $2 per share above the then-current stock price wasn't good enough.  Were they put up to this by Merge?  I haven't a clue.  Ultimately, Merge's offer was 13% higher per share, which amounts to a whopping $70/100 shares. 


I have to add the following movie reference to Mike Cannavo's a few posts below.  (Being a Star Trek fan, I have to relate everything to that more ideal universe).  The setting:  Sarek, Spock's father, thanks Captain Kirk for saving Spock, even though Kirk's son was killed and the Enterprise was destroyed in the process:

Sarek: "Kirk, I thank you. What you have done. .. "

Kirk: "What I've done, I had to do."

Sarek: "But at what cost? Your ship, your son."

Kirk: "If I hadn't tried, the cost would have been my soul."

Thoma Bravo's bid, in the end too low, came with the intent of preserving the "soul" of AMICAS.  How many AMICAS shareholders owned more than 1000 shares? Merge's price yields said shareholders $6,050, minus commission. Thoma Bravo would pay $5,350. $700 is apparently the price put on the soul of AMICAS, and the soul of the investors as well.  The bottom line is the bottom line, I guess.


Dr. Kahane's statement, "Throughout this process, AMICAS' Board has been focused on maximizing stockholder value and our agreement with Merge Healthcare demonstrates that commitment."  Partial translation, according to Dr. Dalai:  "The board would have been sued had we not taken this offer."  This is the world in which we live, folks.  Shakespeare had it right in King Henry VI (Act IV, Scene II):  "The first thing we do, let's kill all the lawyers".  (Friends and family members who are lawyers are of course excluded.)


If there's one thing one learns in medicine, it is to deal with reality.  The Merge purchase apparently will happen, and we will adjust accordingly.  I consider myself one of AMICAS' more loyal customers, and without question, I am its loudest customer.  With that in mind, I have a message for Merge's CEO, Mr. Dearborn:

First, congratulations on this acquisition.  Clearly, you and I both realize that AMICAS is an incredible company.  I have used AMICAS PACS software for many years, and I find it superior to anything else I've tried.  You have just mortgaged your company to the hilt to buy AMICAS, so I have to assume that you and Merge see the same level of value. 


But AMICAS is far more than a collection of software.  AMICAS is nothing less than the sum of its people.  I know them well,  I have worked with these people for years, and they are the finest in the business.  They LISTENED to me and radiologists like me and created a PACS that WORKS and doesn't get in my way.  Then they recreated it and improved it yet again, starting from scratch and doing it one better with Version 6. 


I favored Thoma Bravo's offer over Merge's because I was assured that the former would leave AMICAS alone, in the style of Warren Buffett and Berkshire Hathaway, to do what it does well.  You are about to spend $240 Million on this company.  I challenge you, Mr. Dearborn, I beg you, I implore you to do the same:  Keep the AMICAS team intact.  These people know what they are doing, and they do indeed do it well.  Let them continue to do so.  I'm depending on that, and so are my patients.  I have advised those in the PACS market to strongly consider purchasing the AMICAS product. 

I must put that recommendation on hold until I have your personal assurance, Mr. Dearborn, that the AMICAS product line will go on unscathed under Merge's control, that AMICAS customers will receive the same level of service that we have become accustomed to over the years, and that upgrades and new developments from AMICAS will continue as they would have before Merge came on the scene.  In essence, let the AMICAS team do what they have been doing so well for so long.  Don't fix what isn't broken. 

Please talk to us, your new customers, and learn just how important AMICAS, the company, its people, and its product, is to us.  And by the way, I would very, very strongly suggest that the new company be called. . . AMICAS. 

I'll let you know if Mr. Dearborn responds.  But I'm standing by my words above.  While AMICAS is still my favorite PACS, I must advise anyone considering a purchase to put it ON HOLD until we know where we stand.  Don't go buying something else just yet if you can possibly wait, but. . .