Genstar makes another grab for PRA

31 July 2007

Private equity firm Genstar Capital LLC of San Francisco says it will buy pharmaceutical and cloinical trials management firm PRA International for $790 million. This is the second time that Genstar will own a majority stake in the drug industry contractor, if the deal goes through. However, certain terms of the deal suggest the offer could even fail.

>If it goes through, the deal (which would take PRA private again) would cap a year of tumultuous changes, including a new chief executive, chief operating officer and chief financial officer. Shares of Reston, Virginia-based PRA closed at $30.50 following the buyout announcement on 25 July, a 13 per cent premium to Tuesday''s closing price and 24 per cent higher than PRA''s average closing price for the three months leading to the announcement.

>Also on Wednesday, the company said its second-quarter earnings fell 90 per cent to $693,000 owing to large restructuring charges. Revenues, however, rose 28 per cent to $90.1 million. Excluding the restructuring charge and other one-time items, the profit was $6 million.

>Analysts are questioning whether the move to take the company private was to make even more difficult changes away from the shareholders'' spotlight. But CEO Terry Bieker said the only consideration was to reward shareholders, but investors are not buying the explanation. Many feel the premium isn''t high enough, and if the company continued to perform the way it did last quarter, the stock might be above the offer price by the time the deal closes.

Analyst Richard Glass of Morgan Stanley (which owns around 7 per cent of the company) says he is "disgusted" with the offer. "It''s basically stealing the company and a breach of fiduciary duty," he said. Glass urged all shareholders to vote out the deal and said Morgan Stanley might consider legal action. A majority of shareholders and regulators must approve the deal, which would close in the fourth quarter.

PRA''s largest shareholder is activist fund ValueAct Capital Partners LP of San Francisco, which managed to get a few extra dollars per share in Novartis AG''s $5.4 billion acquisition of Chiron Corporation in 2005. But Gregory Spivy, ValueAct''s board member on PRA and a member of the special committee, apparently voted in favour of the Genstar buyout.