Scenes from TriZetto’s merger…

May 28, 2008

When TriZetto (TZIX) announced last month that it was being acquired by private equity firm Apax Partners for $22 a share, the stock, which fell sharply in March, quickly bounced back to reflect the buyout price. So investors who bought when the stock fell to around $15 were able to take advantage of a nice bounce a few weeks later when the deal was announced on April 11.

But what’s really interesting about the deal is some of the back-story that TriZetto provided in the merger proxy it filed yesterday. In addition to setting the meeting for June 30 and providing a breakdown on who will own what (Apax will have about 71% with TriZetto customers BlueCross BlueShield of Tennessee and the Regence Group each owning about 12.5%), the company provided one of the most detailed “backgrounds to the mergers” that I can recall reading. Perhaps that’s due to three separate shareholder lawsuits looking to stop the merger. Two of the lawsuits claim that the company “failed to disclose material facts regarding the merger”.

As the background notes, Apax first approached TriZetto last November, though unlike all of the other specific dates given, the date for this initial approach is MIA. TriZetto’s board met to discuss this and apparently several other “oral expressions of interest” on Nov. 28 and Apax submitted its proposal in writing on Dec. 7. Another firm — one of apparently 7 that expressed enough interest in TriZetto to make a written offer — submitted its own offer on Dec. 11. A third firm followed up with its own proposal on Dec. 18.

According to the filing, the prices ranged from $21 to $26 a share, although one bidder oddly refused to submit a price by the Feb. 4 deadline that TriZetto had set. In the end, two bidders remained — Apax, which had bid $23 a share and another unidentified bidder who was offering $24.50 to $26 a share. On March 17, the higher bidder dropped out, leaving only Apax, which then dropped its price to $21 a share “due to recent increases in the cost of funds and volatility in the capital markets”. As we now know, the price was eventually increased to $22.

Will all of these details be enough to derail the three separate lawsuits? That’s doubtful, though of course it’s up to the respective judges. Still, it’s pretty interesting that a quick skim of TriZetto’s filings as well as its press releases shows that investors weren’t even told about the “potential financing transaction” that seemed to trigger the merger chain-of-events.

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