TriZetto, IMS Health Agree to Merge; Stocks Falter

The “old economy” bet big Wednesday on the “new” as online health services company TriZetto Group Inc. agreed to merge with drug data giant IMS Health Inc. in a stock swap valued at $4.65 billion.

The combined company, to be called TriZetto Group Inc. and based in Newport Beach, would join TriZetto’s technology with the Westport, Conn., company’s dominance in pharmaceutical research in an attempt to spin business-to-business e-commerce gold.

The bet seemed like a winner early in the day, when the value of the transaction was $8.1 billion.

But the deal’s structure and the attempt at marrying two disparate corporate cultures triggered a market reaction that made the wager look like a loser, at least for now. Investors dumped shares of both firms, decreasing the deal’s value.

Even so, the $4.65-billion value tops the list of major mergers involving Orange County companies, surpassing last year’s $3.9-billion acquisition of Avco Financial Services by Associates First Capital Corp.

TriZetto’s highflying, volatile stock, which is the currency being used to finance the deal, does not appeal to investors who have clung to IMS for its reliability and global franchise, analysts said.

Before Wednesday’s retreat, TriZetto shares had risen 545% from the company’s first day on the market in October, but the price has since seesawed as low as $6.50 and as high as $91.25 a share. The company also has a balance sheet synonymous with risky Internet ventures.

IMS, by contrast, has recorded steady profit, though its stock has gradually fallen 45% in the last year.

“We have to find a better way to communicate the underlying numbers and the strategic value of this,” TriZetto Chief Executive Jeffrey Margolis said. “The question is, can we effectively bring these two groups together?”

The particulars of the deal had even Wall Street veterans scratching their heads.

TriZetto technically is buying IMS by trading 0.4655 share for each IMS share, but IMS shareholders would own 88% of the combined company.

In reaction to Wednesday’s news, TriZetto shares fell 42%, giving up $24.56 to close at $33.50 a share on Nasdaq. The market backlash also sent IMS stock down almost 23% to $16.75, a drop of $4.88 a share, on the New York Stock Exchange.

Once the deal is complete, the new company also would issue three new securities to track the performance of each of units.

By late last year, TriZetto had swollen to about 300 employees. Its revenue grew more than 188% to $32.9 million last year, but it posted a net loss of $7.9 million.

IMS, which has more than 9,000 employees, had $1.4 billion in revenue last year, earning $276 million.