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Covance, Parexel part
June 25, 1999: 11:09 a.m. ET

Companies call off $526M merger, citing disappointing profit potential
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NEW YORK (CNNfn) - In a surprise move, experimental drug tester Covance Inc. said Friday it won't follow through with its $526 million all-stock offer to merge with Parexel International Corp. because the combined company won't produce the kind of earnings growth it had expected.
     Covance shares jumped more than 20 percent on the news, rising 4-1/4 to 25-13/16 after being delayed. That follows an 8-percent rise in the stock Thursday on rumors of the terminated agreement, which both companies confirmed Friday morning. Parexel shares, meantime, fell 3-5/16, or about 21 percent, to 13-5/8 following a 21 percent drop on Thursday.
     The all-stock agreement would have made Covance (CVD) the biggest tester of experimental medicines for drugmakers in North America. The agreement had called for Covance to pay 1.184 of its shares for each Parexel share. Based on Covance's Thursday closing price of 21-9/16, Parexel (PRXL) shares would have been worth $25.53 apiece.
     "Integration planning clearly demonstrated that the merger would not produce the accelerated growth we had initially expected," Parexel Chairman Josef von Rickenbach said in a statement.
     "We decided it wasn't mutually beneficial, and we decided to call it a day," said Beth Leahy, a spokeswoman for Princeton, N.J.-based Covance, adding that both companies felt the arrangement would not have been financially beneficial to shareholders.
     The new company, which was supposed to be named Covance Parexel Inc., would have surpassed Quintiles Transnational Corp. (QTRN) in size and distribution, making it No. 1 in the industry. The companies run human trials for pharmaceutical companies to show whether experimental drugs can be used safely and effectively.
     The proposed merger was valued initially at $827 million when it was announced on April 29. On that day, Covance stock traded at 20-1/2, while Parexel shares traded at 22.
     Both companies said they would pay their own expenses involved in ending the purchase. Covance said it would have costs of $4 million to $6 million to end the transaction, while Parexel didn't provide an estimate. Parexel is headquartered in Boston.
     Covance also said it believes it will meet analysts' estimates of 26 cents per share for the second quarter and $1 per share for the year. Parexel, meantime, said it expects pro-forma earnings of between 18 cents and 20 cents per share for its fourth quarter ending June 30, less than the 25 cents expected by analysts surveyed by First Call Corp.Back to top


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