What, Pray Tell, Was IMS Health Thinking?

I once read that an investment manager makes all of his or her mistakes in the first five years of his or her career, and then spends the rest of the career trying to avoid making the same mistakes. Clearly, the last two years have shattered the illusion that any investor -- professional or individual -- has seen it all. As proof, perhaps, the merger deal that the management teams of IMS Health (RX Quote) and TriZetto (TZIX Quote) came up with last week is in a league of its own -- and a very strong contender for several dubious prizes:

• The "Total Misreading of Financial Markets" Award,
• The "I Can't Believe We Drank The Investment Bankers' Kool-Aid" Award, plus
• The "Worst Explanation of a Deal to a Crowd of Hostile Shareholders and Sell-Side Analysts" Award.

In a grossly overcomplicated deal based upon erroneous assumptions, a reliance on New Economy math and horrendous advice, TriZetto, with what was a $1.2 billion market cap, is going to acquire IMS, which has a $6.5 billion market cap, for what appeared for the briefest of an instant on paper to be $27 per share in TriZetto stock.

Upon the deal closing, TriZetto will take IMS' Erisco division inhouse and combine it with its own Application Service Provider, or ASP, business. It also plans to spin off an IMS division named Strategic Technologies so that it trades publicly and independently, and then issue tracking stock in what would be the 90% or so of IMS Health that is left. ...