What is the primary purpose of this 8-K filing for McKesson?

The primary purpose of this 8-K filing is to announce and detail a material definitive agreement related to a significant strategic transaction: the combination of McKesson's Core MTS business with Change Healthcare's business to form a new, independent healthcare information technology company named NewCo. It outlines the terms, conditions, and key agreements governing this combination.

What is McKesson contributing, and what will it receive in return?

McKesson is contributing its Core MTS Business (excluding specific segments) to NewCo. In return, McKesson will receive a $1.25 billion promissory note payment, 70% of NewCo's equity interests (as membership units), and a Tax Receivable Agreement that provides for future cash payments based on tax savings.

How will the new company, NewCo, be financed?

NewCo will be financed through a combination of equity contributions and substantial debt. The filing indicates that NewCo has secured debt financing commitments totaling $6.1 billion in long-term debt and a $500 million revolving credit facility. These proceeds will be used to pay the cash consideration to Change Healthcare, refinance existing debt, and cover transaction expenses.

What is the planned exit strategy for McKesson from NewCo?

The agreement outlines a structured path for McKesson to exit its investment. This includes the possibility of a Qualified IPO for NewCo within 18 months, followed by a 'Qualified McK Exit' within a specified window (McK Exit Window), which is expected to be a spin-off or split-off of McKesson's interest followed by a merger into the publicly traded entity. There are also provisions for Change Healthcare stakeholders to sell their shares.

MCK 8-K: Material Agreements & Regulation FD

Summary

McKesson Corporation (MCK) announced a significant strategic transaction through an 8-K filing on July 5, 2016, detailing an Agreement of Contribution and Sale dated June 28, 2016. This agreement involves combining McKesson's Core MTS Business (excluding Enterprise Information Solutions and RelayHealth Pharmacy Network) with Change Healthcare's business (excluding its pharmacy claims switching and prescription routing services) to form a new, leading healthcare information technology company, NewCo. McKesson will contribute its Core MTS Business in exchange for a $1.25 billion promissory note payment, 70% equity in NewCo, and a tax receivable agreement. Change Healthcare stockholders will transfer their business for $1.75 billion in cash and 30% equity in NewCo. This transaction is structured to create a more focused entity in the rapidly evolving healthcare IT landscape, with provisions for future liquidity events and governance by both parties.

Key Highlights

1McKesson is combining its Core MTS business with Change Healthcare's business to form a new healthcare IT company, NewCo.
2McKesson will receive $1.25 billion (note payment) and 70% equity in NewCo, while Change Healthcare stakeholders receive $1.75 billion cash and 30% equity.
3The transaction involves significant debt financing of $6.1 billion for NewCo to fund cash consideration and refinance debt.
4The new entity, NewCo, will be governed by a Board of Directors with initial representation from both McKesson and Change Healthcare stakeholders.
5The agreement outlines a path towards a Qualified IPO within 18 months of closing, with specific windows for McKesson to exit its stake through a spin-off/merger (Qualified McK Exit) or for Change Healthcare stakeholders to sell shares.
6Tax Receivable Agreements are in place for both McKesson and Change Healthcare stakeholders, providing potential future cash payments based on tax savings realized from the transaction's structure.

MCKESSON CORP 8-K Report, Material Agreement (Jul 5, 2016)

Summary

Key Highlights

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