Merge Healthcare
(MRGE) recently accepted all the 9.6 million shares (86% of outstanding shares) tendered by eTrials Worldwide (ETWC) shareholders in the just concluded exchange offer. This is in connection with Merge’s recent offer to purchase all outstanding shares of the North Carolina-based eTrials, which provides clinical trials software and services.

Per the agreement, Merge intends to exercise its top-up option to increase its ownership to over 90% of outstanding eTrials shares. Following this, Merge will acquire all the remaining outstanding eTrials shares by a short-form merger without the need of any further approval from the eTrials shareholders.

The offer is a mix of cash and stock valued at over $18.3 million. The shareholders of eTrials Worldwide will receive $0.80 plus 0.3448 shares of Merge for each share of eTrials they hold. The combined Merge-eTrials entity will be able to provide contract research organizations and clinical trial sponsors configurable systems with both critical imaging technologies and electronic clinical capabilities.

Merge is a healthcare software and services company focused on integrating radiology workflow to improve productivity, profitability and patient care by fusing business and clinical workflow, and intelligently managing and distributing diagnostic images and information throughout the healthcare enterprise.

Merge was paralyzed by several issues in the past like a dwindling cash balance, management turnover, accounting miscues, and litigations. The real turnaround started from the second quarter of 2008 when the company received a much needed cash infusion of $20 million from Merrick RIS, LLC in May 2008.

Merge Healthcare recently tapped the Chinese healthcare market by forming an alliance with the leading healthcare IT provider there. The alliance is likely to widen Merge’s customer base and increase its top line.

Congress’ approval of more than $20 billion in spending on health-information technology is also likely to benefit the company.

However, a majority of the spending in the U.S. will be felt between 2011 and 2015.

Merge’s main competitors include AllScripts-Misys Healthcare Solutions (MDRX) and Amicas, Inc. (AMCS).

Merge reported a strong first quarter of fiscal 2009 with growth in its top and bottom lines. The company reported three consecutive quarters of net income. The company’s restructuring activities of 2008 paid dividends by increasing its margins.

The company also started generating cash from operations. Based on the company’s performance in the quarter, we have upgraded Merge to a ‘Hold’.

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