Thursday, April 22, 2010

T-Minus 24 Hours

It's now about T minus 24 hours for Merge to complete the tender offer for AMICAS, and no doubt it will. Just so you shareholders know, I'm not pleased with you, but I'll withhold judgement for the moment. Brief research fails to document any cases in which a company has sued its stockholders, you'll be glad to know. Still, making a decision based on immediate gratification instead of potential long-term consequences to ones' self and others is certainly reminiscent of the behavior of an amorous teenager. But I digress as usual.

In the meantime, I've reproduced below a discussion between Mike Cannavo and an Anonymous fellow who is clearly pro-Merge.

Anonymous said...

The $41 million in preferreds sold to the 14 investors is money which will be redeemed in two years or less. These investors get 15% on their money, get their money back, AND get the 7 million newly issued common shares. Not a bad deal if you can get it.

The $200 million high yield offering (still don't know the coupon rate) is ahead of the preferred in the capital structure, but has no goodies attached.

If you read the investor presentation, you see that the new company will have 12% market share, and that the new owners project $15 million in cost savings. I think the question you are asking is, where exactly does Merge intend to find the $15 million? What's going to go?

BTW: I don't think MRGE is done, by any means. There are many more small companies in this space yet to acquire. They have also taken an interest in the EDC market and in the anaesthesia IT market.



3:05 PM

PACSMan said...

Not a bad deal if you can get it indeed. The question is will they get it?

If you look Merge turned a meager $285K profit last year on almost $67M in sales and much of that "profit" came from reduced $20M in overhead expense. The prior two years were heavy duty losses. If sales stay the same they would need to bring in an additional $10M just to repay the 14 investors their 15% premium. If they are higher the repayment is higher. AMICAS stock hasn't exactly set the world on fire either and the combined expenses associated with merging both companies will negatively impact the bottom line for at least the next 12-18 months if not longer.

12% market share? Pass that doobie this way please. Not a chance in hell. 5% would be highly commendable.

I've been in the PACS marketplace nearly 30 years and seen a lot and what is going on here simply defies logic...but then who said logic ever had anything to do with the investment world? That is why the mere pittance I have managed to save is in day of deposit day of withdrawal accounts- and I have no worries of it exceeding the FDIC's guarantees either.

Oh, and the $15M? If the buyers on hand for some of these products are serious they can write a check for the remaining balance due like the Dalai and I go out and buy lunch. It's just a question of how serious they are now...

I wish everyone well here. Should be interesting to see how this all plays out.



PACSMan


8:21 AM

Anonymous said...

Here's the relevant page of the investor presentation:

http://www.sec.gov/Archives/edgar/data/944765/000095012310032535/c57327c57327z0028.gif

It says:

GE 19%

MCK 16%

Phillips 15%

MRGE/AMCS 12%

Fuji 9%

Agfa 9%

Other 20%


Merge is likely to go after some of that "other".



1:10 PM

PACSMan said...

Thanks for the link. It’s fascinating "information" although largely incorrect. There is also a lot of conflicting and inaccurate data in the presentation as well but you have to know the marketplace to understand this. Needless to say the Dalai and I had a few good belly laughs for sure.

Understand reports like those cited exist purely to sell reports and to have investors buy into a market they really don’t understand. Most of the people selling these reports wouldn't know a PACS if it bit them in the a$$. Heck they can't even get the name of PACS right as slide 14 ( c57327c57327z0010.gif) shows calling it a "Picture archive retrieval system". PACS or PARS? Which is it (laugh)?

This was not Merge’s issue- its the “garbage in garbage out” cycle of data that is out there to sell investors on, pure and simple. All companies like Merge and others are doing is getting “facts” from people who are charging $5-10K for a report and presenting the "information" contained therein in a way that is positive. And people are buying it hook line and sinker.

In Italian there is a saying “Uno sciocco e il suo denaro son presto separati”. Look it up and you’ll understand how I feel about investor presentations.


PACSMan




2:47 PM

Anonymous said...

The bonds were sold today, yield 12.5% (coupon 11.75%), so the investors were somewhat skeptical. I'd be interested to know which parts of the investor presentation you would dispute, besides the 12% figure.


11:26 PM

PACSMan said...

"Somewhat skeptical." I love it!! Reminds me of one of my favorites quotes from the movie Absence of Malice "You had a leak? You call what's goin' on around here a leak? Boy, the last time there was a leak like this, Noah built hisself a boat." Yeah I'd be VERY skeptical too be it my money or someone elses given what is shown here.

I'd love to take apart the presentation slide by slide for you and show you the reality behind the presented "facts" but that is what I do for a living. I will tell you that, from my perspective, more than half of what is up there is pure fantasy- documented fantasy, mind you- but fantasy nonetheless, so caveat emptor.

I perform an average of two investor calls per week dealing with stuff like this so I'm sorry to say I just can't do this for free. My investment clients say my input is worth its weight in gold because they haven't a clue about the realities of this market while I live in it every single day.

Get a few of your other investor friends together and give me a call at (407) 359-6575 and we'll schedule an hour to go over the presentation. You can then ask me whatever you want as long as it doesn't impinge on proprietary or confidential areas.

Hope to hear from you.

PACSMan

8:55 AM

Anonymous said...

Sorry Mike, but you've been down on this deal since day one. MRGE stock is up 30% from the low around $2 a few weeks ago. Of course they are going to shine up the investor presentation a bit. Fact is, there are no other consolidators in this sector, and the big boys aren't interested in acquiring the remaining small fry. Mr. Ferro is engaged in a risky but potentially very rewarding exercise here. He's being advised by Glen Tullman who, as you know, is certainly no slouch when it comes to HCIT.

11:01 AM

Anonymous said...

I don’t deny that I have been down on this deal since day one because IT MAKES NO SENSE!!! Thoma Bravo made sense, this deal doesn’t.

Yes the stock price may be up 30% from a few weeks ago but it’s also right where it was in mid-February (a mere 8 weeks ago) and still nearly almost half of what the stock price was in November, 2009 (a mere 5 months ago). So keep drinking that Merge Kool Aid.® and interpret the "facts" as you see them…

“Shine up the investor presentation a bit?” Excuse me while I go change my pants (laugh). The investor presentation “creatively interprets” expensive and hard bought facts from research companies whose survival largely hinges on the sale of these reports to companies to include this type of data in investor presentations. Again, believe what you will and invest where you will. Just don’t come crying to me when you lose your a$$. That said, I have ALWAYS said that Merge marketing and PR is second to none and this investor presentation once again reinforces that fact. Merge’s marketing is incredible…

Most of the existing big boys don’t need another PACS and are smart enough to know that any time you offer two competing products in the same marketplace both suffer. I can get you a list of at least 6 companies who learned this the hard way in the past few years from GE on down. Someone also needs to remind Merge that that happened when they bought e-Med a few years back- unless they deny that happened that is.

I don’t know Mr Tullman but am impressed that Allscripts stock rose from $5 to $20 in just about the same amount of time that Merge’s went in the opposite direction with about the same results. Of course before Misys hit the bottom at $5 it was up at $15….shades of Merge all over again (laugh)…but I don’t follow their stock so I have no idea what was behind that either. That said, I have also seen several mistakes that Misys has made trying to enter into PACS market dating back to 2003 with an eRad/Image Medical offering and have seen their lack of a product offering in this current market since then as well. To the best of my knowledge the only product Misys offers is the PACS arena is the PIM® and sales of it aren’t exactly setting the world on fire either. I wonder how much of Mr Tullman’s $1M 2009 compensation he is willing to invest in the Merge deal? Now THAT is the mark of a confident man…(laugh). That said though, he has a VERY impressive background and done a lot more in his 50 years on this planet than I have- so kudos to Merge to reaching out to someone who obviously knows the HIT sector well. Now if they would just reach out to someone like myself or the Dalai who know the PACS marketplace well this would serve everyone.

Lastly, “risky but potentially rewarding exercise”? For whom? The investors? Merge leadership? AMICAS and Merge both? How about for the end users of both companies. Now THAT is where risk comes into play…and where my biggest concern lies.

The Dalai and I are still standing by the phone waiting for Mr. Ferro’s call- without having to sign away our first born male child via NDA’s just to chat with him either. That might change my mind about the company- but I doubt it. Of course I’m still waiting on Morgan Stanley’s call too…and if they bailed on the $200 bridge loan because of what we posted the Dalai and I want our 10% finders fee- or 5%, 2%, 1%, a ham and Swiss on rye hold the mayo- just give us something for saving them from what I feel is sure financial ruin.

Stay tuned. It only gets better.

PACSMan

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