US-based contract research organisation (CRO) PharmaNet Development Group has found a way out of its current financial bind by agreeing to a merger with affiliates of private equity firm JLL Partners.

Under the merger agreement, which values PharmaNet’s common stock at around US$100 million, JLL will start a tender offer for all of the CRO’s outstanding shares at a price of US$5.00 per share in cash.

As PharmaNet noted, this represents a significant premium over the company’s average closing price for the past 30 days. The day before the deal was announced (2 February), PharmaNet closed at US$1.34. After the merger announcement the shares hiked up to US$4.64, still a long way from the high of US$43.05 attained by PharmaNet in January 2007.

The tender offer is expected to be completed by the end of the first quarter. The transaction will be financed by a US$250 million equity commitment from JLL which, notably, includes the necessary funds to settle the US$144 million principal amount of PharmaNet’s outstanding convertible notes.

In December the CRO said it had allowed an exchange offer for its outstanding convertible notes, announced on 20 November 2008, to terminate on the expiry date as “certain holders of the convertible notes who had indicated to the Company their intention to tender their convertible notes in the exchange offer instead sold them on the open market”.

Strategic alternatives

At the same time PharmaNet, which was hit hard last year by a spate of project cancellations in its crucial late-stage business, also announced that it was working with its financial adviser “to pursue strategic alternatives, including the potential sale of the Company and the exploration of alternatives to retire the Company’s convertible notes”.

The CRO had cut its 2008 financial guidance for the second time last September, blaming largely the cancellation or postponement of clinical development projects in its late-stage segment and a lower than expected sample volume of early-stage business.

JLL will acquire PharmaNet in a two-step transaction. The cash tender offer for the CRO’s outstanding shares of common stock will be followed by a merger in which any untendered outstanding shares of PharmaNet common stock will be converted into the right to receive the same cash price per share (i.e., US$5.00) paid in the tender offer.

“We believe this transaction provides meaningful value to our stockholders while providing the solution to address the outstanding convertible notes,” commented Jeffrey McMullen, PharmaNet’s president and chief executive officer.

Ramsey Frank, managing director of JLL, said the CRO was “well-positioned as a leading provider of outsourced clinical development services with a global infrastructure and an excellent reputation. We look forward to working with the management team to enhance the Company’s growth prospects and expand its portfolio of services".