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Emdeon's $3 Billion Privatization Undervalued, Say Shareholders

The healthcare business management company's majority shareholder and board approve deal with Blackstone, but minority owners protest.

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Emdeon, which provides physicians with revenue and payment cycle management and clinical information exchange systems, has forged a $3 billion privatization deal with investment house Blackstone. But some minority shareholders don't want the sale to go through so fast.

Publicly traded Emdeon announced Thursday that its board and its majority owner, private equity firm Hellman & Friedman agreed to accept the cash offer of $19 per share from Blackstone hedge fund Blackstone Capital Partners VI. The price represents a 27% premium over Wednesday's close at $14.99.

"This transaction provides for a great return for our investors," Emdeon CEO George Lazenby said in a company statement. "We are excited about the opportunity to move forward with two excellent investors in Blackstone and Hellman & Friedman. They each have an in-depth understanding of our business and industry, and will be tremendous partners as we continue to pursue our strategy of making healthcare efficient."

Shortly after the deal was announced, though, at least a half-dozen law firms representing minority shareholders said they were conducting their own investigations of Emdeon, in part because they believe the Blackstone offer undervalues the company.

"Emdeon has seen dramatic growth in the past year, with its share price rising from $10.00 in September 2010 to $16.00 in July 2011. Indeed, at least one analyst has set a target price of $21.00 for the company's stock," Washington law firm Finkelstein Thompson said in a statement Friday.

"The investigation is focused on the potential unfairness of the consideration to Emdeon's shareholders, the process by which the company's board of directors considered the transaction, and potential conflicts of interests among Emdeon's board members," Finkelstein Thompson continued.

Hellman & Friedman, which currently holds about 70% of Emdeon shares, will retain an unspecified minority stake in the company when the deal closes.

This privatization plan is just the latest in a long line of ownership changes and restructuring at Nashville, Tenn., based Emdeon. The current incarnation as a revenue-cycle management and healthcare transactions processor can trace its lineage to Healtheon, a 1990s dot-com that merged with WebMD in 1999. The combined company, then called Healtheon/WebMD, bought Envoy, a major healthcare transactions clearinghouse, from Quintiles Transnational in 2000. Three years later, WebMD acquired claims management firm Medifax-EDI.

WebMD created the Emdeon name in 2005, creating a holding company called Emdeon, Inc. The current incarnation of Emdeon was called Emdeon Business Services following that restructuring. In 2006, Emdeon sold another subsidiary, Emdeon Practice Services, a vendor of electronic medical records and practice management software, to Sage Group. Emdeon Practice Services included Intergy, the outgrowth of 1990s-era products Medical Manager and MedicaLogic.

The split also created a separate, publicly traded subsidiary called WebMD Health Corp. Emdeon changed its corporate name to HLTH in 2008, which sold its remaining interest in Emdeon Business Services to Hellman & Friedman and private equity firm General Atlantic. Emdeon Business Services then took over the Emdeon name, and in 2009 went public.

HLTH and WebMD Health merged in 2009 to form the present-day WebMD.

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