Neutral on Phase Forward – Analyst Blog

We recently reiterated our Neutral rating on Phase Forward Incorporated (PFWD).

 

In April, Oracle Corp. (ORCL) announced that it will acquire Phase Forward for $17.00 per share or $685 million. The acquisition price was at a premium of 30% on $13.08 (share price on April 15, 2010).

 

Management at Oracle believes that it should benefit from Phase Forward’s Software-as-a-Service (SaaS) based Integrated Clinical Research Suite, which manages clinical development and safety processes from Phase 1 clinical trials through regulatory submissions and post-approval monitoring.

 

To control costs, the life sciences and health care industries continue to converge. The acquisition will add complementary assets to Oracle Health Sciences. Phase Forward management and employees are expected to join Oracle as part of the Oracle Health Sciences Global Business Unit.

 

The combination is expected to enable researchers, clinical development professionals, physicians, regulators and patients to capture, contribute, access and share data more effectively and in a secured manner.

 

Following the announcement, several law firms filed suits alleging that the acquisition price of $17.00 is unfair and does not reflect the true value of the company.

 

Although the acquisition price of $17.00 represents a 30% premium on the stock price of the day before the acquisition was announced, the lawsuits claim that a higher value should have been attributed as the stock was trading at this level on November 17, 2009.

 

Phase Forward recently received a request for additional information (referred to as a second request) from the United States Department of Justice (DoJ) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).

 

The request related to the proposed merger between Phase Forward and Oracle Corp. The second request will extend the pre-merger waiting period imposed by the HSR Act.

 

Phase Forward is actively working to respond to the second request in an effort to obtain termination of the pre-merger waiting period.

 

The completion of the proposed merger is subject to stockholder and regulatory approval. Phase Forward has scheduled a special meeting of its stockholders on June 22, 2010, to vote on the proposed merger.

 

If the acquisition does not go through, the price will fall sharply. We set a target price of $17.00 in tandem with the acquisition offer.