Monday, October 3, 2011

PEU Business As Usual for PPD

The Carlyle Group and Hellman & Friedman will buy PPD for $3.9 billion, down from a previously estimated $4.3 billion.  PPD is a clinical research organization, which helps drug companies study potential new drugs. SEC filings on the deal state:

What changes will come as a result of this transaction?

Following completion of the transaction, PPD will be owned privately by The Carlyle Group and Hellman & Freidman. As such, PPD will no longer be a publicly traded company.

For our employees, it will be business as usual in delivering on the research programs that our clients have entrusted to us. Under the ownership of The Carlyle Group and Hellman & Friedman, we will continue to provide the highest quality drug discovery and development services in the CRO industry. We also expect, as a private company, to have increased flexibility to pursue our long-term strategic goals.

The company omitted two major changes, PEU management fees and dramatically higher interest costs.  "Business as usual" will change to pay these increased expenses.

Will there be changes to my health, welfare and retirement benefits?

No changes are expected this year or next year as a result of this transaction.
It's a good thing PPD isn't in Great Britain, where Carlyle's recent deals dumped the employee pension plan at Brintons and RAC. The merger agreement between PPD and Jaguar Holdings LLC, Carlyle and Hellman's merger subsidiary, speaks to employee benefits:

During the period commencing at the Effective Time and ending on December 31, 2012, Parent shall cause the Surviving Corporation to provide individuals who are employees of the Company and its Subsidiaries at the Effective Time with employee benefits, including cash-based bonus opportunities, that are substantially comparable in the aggregate to those provided by the Company and its Subsidiaries immediately prior to the Effective Time.
Benefits can change substantially as long as they are comparable in the aggregate.  PPD employees should watch their benefits closely.  They could monitor Carlyle Partners V, monetizer of BankUnited and Booz Allen Hamilton.

Carlyle cofounder David Rubenstein told Milken Institute attendees that U.S. healthcare costs weren't going down.  Contrast PPD & Carlyle's press release with Rubenstein's words:

Karen H. Bechtel, managing director and head of the healthcare group at Carlyle, said, “Fred Eshelman and PPD’s management team have built a leading and extremely high quality global research and services organization that will continue to help pharmaceutical and biotech companies develop new drugs at lower costs.

PPD's fees are going up due to increased interest expense, currently nonexistent, and new management fees.  PPD's balance sheet will more than double from $1.9 billion to $3.9 billion.

How much research work will Carlyle and company send to lower cost countries?  Americans will likely get higher health care costs and fewer jobs.  That's Carlyle's pattern.