Mckesson and Change Healthcare to form new healthcare IT company

McKesson, a leading global healthcare services and information technology company, and Change Healthcare Holdings, Inc., a leading provider of software and analytics, network solutions and technology-enabled services, today announced the creation of a new healthcare information technology company. The entity will combine substantially all of Change Healthcare’s business and the majority of McKesson Technology Solutions (MTS) into a new company with fiscal year end March 31, 2016 pro forma combined total annual revenues of $3.4 billion.

The new organization brings together the complementary strengths of MTS and Change Healthcare to deliver a broad portfolio of solutions that will help lower healthcare costs, improve patient access and outcomes, and make it simpler for payers, providers, and consumers to manage the transition to value-based care. As a separate entity singularly focused on healthcare technology and technology-enabled services, the new organization will be positioned to better respond to customer needs and deliver next-generation innovations.

McKesson has scheduled a conference call for today June 28, 2016, at 8:45 AM ET, to discuss the transaction. Details for the conference call are included later in this press release. For more information on the transaction, visit http://www.healthtechtransformation.com.

“This is a bold, innovative transaction that creates a company with an enhanced ability to help customers address their increasingly complex financial and clinical challenges,” said John H. Hammergren, chairman and chief executive officer, McKesson Corporation. “The new company will establish a more efficient suite of end-to-end payment and claims solutions, as well as clinical capabilities, while unlocking the value of our MTS businesses in a tax-efficient manner. We look forward to partnering with Change Healthcare’s management team and employees to create this new enterprise and to help customers reduce complexity, lower costs and ultimately provide better care.”

“The combination of these two entities comes at a transformational time in U.S. healthcare,” commented Neil de Crescenzo, president and chief executive officer, Change Healthcare. “Together we will create significant value by bringing together complementary capabilities from both organizations to deliver innovative new solutions for customers, create opportunities for team members at a leading healthcare technology company, and drive advancements that address the three critical areas of cost, quality and outcomes across the healthcare sector.”

The new company will be able to offer health plans and providers a comprehensive suite of end-to-end financial and payment solutions and technologies. In addition, customers will benefit from solutions that help them manage administrative and clinical complexity as they navigate the transition to value-based care. Patients will have better tools that allow them to make more informed decisions, helping them maximize their healthcare dollars and receive high quality care.

“We are extremely pleased to be part of this important new company,” said Neil P. Simpkins, senior managing director of Blackstone. “The innovative track records and forward-thinking experiences of both organizations create a truly unique opportunity for positive impact across the healthcare ecosystem.”

Transaction terms and structure

Under the terms of our agreement, McKesson will contribute the majority of its McKesson Technology Solutions businesses to the new company, with the exception of RelayHealth Pharmacy and its Enterprise Information Solutions (EIS) division, which will be retained by McKesson. McKesson separately announced today that it will explore strategic alternatives for its EIS division.

Change Healthcare will contribute all of its businesses to the new company, with the exception of its pharmacy switch and prescription routing business, which will be owned separately by the current Change Healthcare stockholders. Change Healthcare is currently majority-owned by Blackstone.

McKesson will own approximately 70% of the new company, with the remaining equity stake held by Change Healthcare stockholders, which includes Blackstone and Hellman & Friedman. McKesson and Change Healthcare stockholders will jointly govern the new company and John H. Hammergren will serve as chairman. Neil de Crescenzo will serve as chief executive officer, joined by an experienced management team comprised of leaders from both McKesson and Change Healthcare.

Financial highlights

The transaction unlocks value for McKesson and Change Healthcare stockholders by creating a new company with a singular focus on healthcare technology and technology-enabled services, and is expected to generate in excess of $150 million in annual synergies by the second year following the close of the transaction.

The new company has received commitments for $6.1 billion of funded debt related to this transaction, with proceeds to be used to repay approximately $2.7 billion of existing Change Healthcare debt, make $1.25 billion in cash payments to McKesson and make $1.75 billion in cash payments to Change Healthcare’s stockholders, with the remainder to be used for transaction-related expenses.

The transaction is subject to closing conditions, including antitrust clearance and the completion of audited financial statements of the MTS businesses being contributed to the new company, and is expected to close in the first half of calendar year 2017. The agreement provides that McKesson and Change Healthcare will take steps to launch an initial public offering in the months following the close of the transaction, subject to market conditions. Thereafter, McKesson expects to exit its investment in the new company in a tax-efficient manner.

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