In today’s earnings announcement, AmerisourceBergen, parent company of work comp PBM/ancillary services firm PMSI, detailed the financial impact of the deal.
ABC carried PMSI on the books at about $260 million; by selling the property for $40 million (plus a $10 million contingency) ABC will be taking a $222 million hit as a result of the transaction. On an earnings per share basis the result is 1.37 per share, giving ABC a net loss of $108 million, or 67 cents per share.
Observers who are confused about the recent on-again, off-again status of the PMSI sale can be forgiven for that confusion; ABC has been somewhat schizophrenic about its dealings with PMSI. After putting PMSI on the market early this year, ABC announced last month that the company was not going to sell PMSI after the initial offers came in well under expectations. According to ABC’s CEO David Yost, “We look to PMSI to be on track in the September quarter and into fiscal ’09.”
Contrast this with Yost’s announcement today – “We were very disappointed with PMSI’s performance in this quarter, and after re-evaluating our alternatives, we decided to sell the PMSI workers’ compensation business in order to focus our full attention on our pharmaceutical distribution and related businesses and allow H.I.G. to focus on the opportunities at PMSI.”
ABC’s impatience with the turnaround may have played a role, but from here it looks like the hammering Yost took over ABC’s overall financial performance to date may have been more of a motivator.
HIG, the investment firm that bought PMSI does have some experience in this space with investments in Align Networks and Gould and Lamb. They have been quite successful in selling properties and generating rich returns for their investors, a history that bodes well for PMSI. And for the PMSI employees who add value, are flexible, focus on customers, and don’t buy into the “we do it that way because that’s the way we’ve always done it” nonsense.
Jul
24
One thing is for sure. H.I.G. Capital knows it’s business. When they bought Gould and Lamb for 90MM and sold it 13 months later for 180MM they distinguished themselves as a private equity firm that knows how to make a good deal in the WC managed care space. I think we will find that 50MM was a steal for PMSI despite its current problems. Although I can’t imagine keeping the existing management in place after the fiasco of the past several years.
One thing is for certain, had AmerisourceBergen NOT sold PMSI, the entire company may have gone out of business. When the announcement was made to sell this unit, they either had to spin it off or discontinue operations in 12 months. Three to four months was wasted with a long, drawn out process that ended in a decision not to sell. The following months were also wasted with no visible changes from management. HIG will hopefully breath new life into PMSI. New leadership and an infusion of capital is just what PMSI needs to not only survive, but to prosper.