Merge/Amicas Deal: Place Your Bets

Ms. PACS: It's time to place your bets ladies and gentlemen.

The odds were in favor of Merge pulling off a $248 million acquisition of Amicas when it issued a statement guaranteeing it could back the offer. Morgan Stanley even put its good name behind the deal. But let's face it, this Merge/Amicas merger keeps dragging out...although it has provided hours of fun for the PACSman...and its getting a bit messy.

According to the PACSman, "They raised $40M from 14 investors on the 2nd then came out with another $200M offering on the 6th." This would prompt anyone to wonder if their loan from Morgan Stanley has fallen through. Or are there some existing conditions in the loan, forcing Merge to raise capital from other investors?

They say, never let them see you sweat, but it's pretty hard not to in a pickle like this one. So, if you don't mind a little sweat, and want to enjoy this as much as the PACSman does, then let's play a favorite game of mine, Texas Holdem Poker.

Get ready to place your bets.

Lets look to an impartial party, Moody's Investors Service. Moody's recently demoted its rating of Merge Healthcare Inc. slightly to a B2 corporate family rating. Why did Moody's drop it five notches below its previous investment grade? Risk. Moody's said, in a nice way, it was due to "Merge's small scale, integration risk, and risk that it could continue to pursue growth through acquisitions are behind the rating."

Place your bets...

But there was a tone of optimism. Moody's said, "We believe, however, that if the Amicas acquisition is well-executed, there could be substantial opportunity for cost synergies..."

Place your bets...

"...And the combined company to generate strong free cash flow. Another beam of hope.

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But Merge is a "relatively niche player" in an industry dominated by large imaging equipment vendors and IT companies.

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Plus, it relies heavily on radiology.

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In the meantime, while the company figures out how to diversify its consumer base, the $35 million to $40 million it will get following the acquisition's close will provide "adequate cash" over the next year. Whew.

Place your bets...

Wait, one more thing, it’s lacking a “revolving credit facility,” which apparently could lead to the depletion of its cash reserves.

Now, show your cards

And you wonder what really happens on Wall Street.