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IMS Health is being stolen

November 06, 2009 | About:
It was announced Thursday that IMS Health (RX) was to be stolen from its shareholders for $4 billion or about $22 share; a private equity firm will buy them out. IMS Health should have free cash flows this year over $340 million (the actual number should be higher than $400 million, but is benefited by a $60 million onetime tax benefit).

So this company, which has virtually no competition, has barriers to entry impossible for a new entrant to overcome, and a cash printing machine will be sold for about 12 times free cash flows. Over the past year we’ve seen much lower quality companies being sold for much higher valuations than this. Most recently, Burlington Northern Santa Fe, which has a significant competitive advantage but has far inferior return on capital and free cash flow generation than IMS, is to be purchased by Mr. Buffett for about 20 times earnings and 30 or more times free cash flows. IMS Health’s management and board have a history of making dumb capital allocation decisions, but this one may go down in history as their dumbest.

We own these shares and will probably hold on to them in the hope that shareholders will refuse this offer.

Vitaliy Katsenelson

About the author:

Vitaliy Katsenelson
Vitaliy Katsenelson is Director of Research at Investment Management Associates and teaches at the University of Colorado. To read more of his articles visit . His book Active Value Investing was published by John Wiley & Sons in September 2007.

Visit Vitaliy Katsenelson's Website

Rating: 1.5/5 (2 votes)


Dew_nay - 4 years ago
I wouldn't say IMS management is dumb. I think they are just atrocious to shareholders. They have no consideration to the common shareholders. Business is a good one but managed by people who only care about how to enhance their own pockets in my opinion. They ain't dumb, just that they ain't honest. When lack of honesty meets intelligence, loyal shareholders suffer.

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