June 9, 2010 / 6:56 AM / 8 years ago

UPDATE 4-Allscripts to buy rival Eclipsys for $1.3 bln

* Eclipsys owners to get 1.2 Allscripts shares per share

* Allscripts shares fall 9 pct, Eclipsys rises 1.2 pct

* Allscripts’ majority owner Misys will reduce stake

* Misys shares close 11.4 percent higher (New 1st paragraph, adds analyst comments, further deal details, Allscripts, Eclipsys trading)

By Paul Sandle and Lewis Krauskopf

LONDON/NEW YORK, June 9 (Reuters) - U.S. healthcare IT company Allscripts (MDRX.O) plans to buy rival Eclipsys ECLP.O in a $1.3 billion all-stock deal to capitalize on a huge influx of U.S. government funding for electronic healthcare records.

The deal combines Allscripts’ business in physician offices and post-acute care with Eclipsys’s hospital IT business to create a client base comprising more than 180,000 doctors, 1,500 hospitals and nearly 10,000 nursing and other facilities, the companies said in announcing the deal on Wednesday.

That combination better positions the merged company to win access to $30 billion of federal funds for the adoption of electronic healthcare records, the companies said.

The Obama administration has created incentives to induce doctors and hospitals to move to electronic recordkeeping, with subsidies available from 2011.

“The stimulus bill is having a huge impact and is a primary reason for this combination,” ThinkEquity analyst Glenn Garmont said. “Now more than ever before these doctors, and the hospitals that they’re affiliated with, need to be able to communicate and exchange information seamlessly.”

Eclipsys investors will receive 1.2 Allscripts shares for each of their shares, representing a 19 percent premium to the closing price on Tuesday.

Allscripts shares fell 9 percent to $16.75 in afternoon Nasdaq trading after the deal’s announcement, while Eclipsys shares were up 1.2 percent at $18.73.

Ahead of the deal, Allscripts’ majority owner, British software company Misys MSY.L, will cut its 55 percent stake in Allscripts to about 10 percent and return more than $1 billion to investors. Misys shares rose 11.4 percent in London trading. (Breakingviews column [ID:nN09132455])

“We are at the beginning of what we believe will be the fastest transformation of any industry in U.S. history,” said Allscripts Chief Executive Glen Tullman, who will head the merged company. Eclipsys Chief Executive Phil Pead will become chairman of the combined company.

Combining Chicago-based Allscripts with Atlanta-based Eclipsys would create a company uniquely positioned to capitalize on the move to electronic records, Tullman said.

Only 12 percent of doctors use the technology at the moment, and Misys Chief Executive Mike Lawrie said the market was growing at 15 percent a year.

The deal is expected to close in four to six months, and add to Allscripts non-GAAP earnings beginning in 2011. Allscripts anticipates more than $100 million of cost savings over the first three full fiscal years after the deal’s completion.

At 13.5 times expected EBITDA (earnings before interest, taxes, depreciation and amortization), Garmont said, the value of the deal was in line with recent deals in the health IT business.

Maxim Group senior analyst Anthony Vendetti said the deal was positive over the long term for Allscripts but that investors may be concerned about short-term distractions.

“It’s going to be hard for them not to be distracted because there is a lot of work in an acquisition this size,” Vendetti said.

    STIMULUS BOOST

    Misys, which merged its healthcare business with Allscripts Healthcare Solutions in October 2008, putting about $700 million of cash and assets in the Nasdaq-listed company, said it would focus on its banking software business.

    “The merger has been extraordinarily successful,” Misys CEO Lawrie said in a call with reporters.

    “We have had strong growth and some luck with the U.S. stimulus package for healthcare records. The time is absolutely perfect to pull this together.”

    Lawrie said the market had undervalued Misys and that it traded at a discount to peers because of its complicated structure. The company competes with Thomson Reuters (TRI.TO), Sungard Data Systems and Temenos (TEMN.S) in financial software.

    Misys shares rose to a 6-1/2 year high as analysts welcomed the effective break-up. “Misys is doing absolutely the right thing in selling its stake in a highly overvalued business,” said Roger Phillips of Evolution.

    “Although the management look opportunistic, having touted the long-term aspects of U.S healthcare IT for 18 months, they have created major shareholder value with this deal.”

    Misys will sell about 68 million Allscripts shares via a secondary placement and through buybacks by Allscripts, raising more than $1.3 billion. It will return money to its shareholders via a tender offer later in the year, after transaction fees and paying back about 75 million pounds ($108 million) of debt.

    Lawrie said Misys’s remaining Allscripts stake will enable it to keep a hand in the growing U.S. healthcare market.

    In another healthcare deal, U.S. drug wholesaler Cardinal Health Inc (CAH.N) will buy privately held Healthcare Solutions Holding LLC for more than $500 million to expand its business in the fast-growing area of specialty medicines. [ID:nN09123402] (Editing by Dan Lalor, Sharon Lindores and Steve Orlofsky) ($1=.6926 Pound)

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