The sale of Neoforma took a little longer than expected, but in the end, the e-commerce company was sold to a likely party-competitor Global Healthcare Exchange.
San Jose, Calif.-based Neoforma-partially owned by hospital alliances VHA and University HealthSystem Consortium-announced Oct. 11 that it reached a definitive agreement to merge with healthcare supplier-backed GHX, Westminster, Colo., in a deal valued at $200 million.
In January, Neoforma announced that it was exploring strategic alternatives and it hoped to have a merger agreement by September (Jan. 17, p. 12). This deal finishes that process. The combined entity would have about $20 billion of transaction volume in 2006, according to Michael Mahoney, GHX's chief executive officer.
GHX was expected to have volume of about $8 billion in 2006, and Neoforma's volume is about $11 billion annually.
The company's complicated ownership structure slowed progress on the sale, said Bob Zollars, chairman and CEO of Neoforma. Zollars said that he and the parties were happy with the outcome. "We're getting good feedback," he said.
Sean Jackson, an analyst for Avondale Partners, said the deal could be a plus for hospitals because the merged company will be able to offer greater efficiencies, which appears to be the case for VHA.
"We now have a single e-commerce platform hospitals can standardize around," said Curt Nonomaque, VHA's president and CEO.
The companies also announced that GHX reached a new outsourcing agreement with VHA, the University HealthSystem Consortium and Novation, the alliances' group purchasing organization that had an exclusive 10-year contract with Neoforma. The Novation agreement accounted for about 85% of Neoforma's revenue, Jackson said.
Nonomaque said the new outsourcing agreement with GHX isn't much different from the agreement with Neoforma, but the newly negotiated payments to GHX, which average out to roughly $39 million a year, fall over time and are lower than the $61 million per year Neoforma received.
VHA owns 41.6% of Neoforma's stock and University HealthSystem Consortium owns 10.3%. The alli-ances will own stakes in GHX, with VHA exchanging 6.6 million of its 8.6 million Neoforma shares for an 11.6% ownership in GHX, and UHC exchanging roughly 1.5 million of its 2 million shares for a 2.9% equity.
The alliances will receive $10 per share for each of the remaining shares.