Item 1.01 | Entry into a Material Definitive Agreement. |
Explanatory Note
As previously announced, on March 1, 2017, McKesson Corporation (“McKesson”) and Change Healthcare Inc. (formerly HCIT Holdings, Inc.), a Delaware corporation (the “Company”), completed certain transactions whereby the majority of McKesson’s Technology Solutions segment and substantially all of Change Healthcare Performance, Inc.’s (formerly Change Healthcare, Inc.) legacy business were contributed to Change Healthcare LLC, a Delaware limited liability company (“Change Healthcare”), resulting in the establishment of a joint venture (the “Joint Venture Transactions”).
On February 10, 2020, McKesson issued a press release announcing the commencement of its exchange offer (the “Exchange Offer”) related to the separation of McKesson’s interest in Change Healthcare. The separation is being effected in connection with the merger of PF2 SpinCo, Inc. (“SpinCo”), a Delaware corporation and a wholly owned subsidiary of McKesson, and the Company (the “Merger”). As previously announced, in connection with the consummation of the Joint Venture Transactions, the Company, SpinCo and McKesson entered into a number of agreements, including the Merger Agreement dated as of December 20, 2016 (the “Merger Agreement”), pursuant to which, among other things, immediately following the consummation of the Exchange Offer (and any requiredclean-upspin-off distribution as described below), SpinCo will merge with and into the Company, with the Company as the surviving company. The separation transactions described in this Current Report on Form8-K are collectively referred to herein as the “Transactions”.
In the Exchange Offer, McKesson is offering the holders of its common stock, par value $0.01 per share (the “McKesson Common Stock”), the option to exchange their shares of McKesson Common Stock for shares of SpinCo’s common stock, par value $0.001 per share (the “SpinCo Common Stock”). SpinCo will hold all of McKesson’s interest in Change Healthcare prior to the consummation of the Exchange Offer. If the Exchange Offer is not fully subscribed because less than all shares of SpinCo Common Stock owned by McKesson are exchanged, or if the Exchange Offer is consummated but not all of the shares of SpinCo Common Stock owned by McKesson are exchanged, the remaining shares of SpinCo Common Stock owned by McKesson will be distributed in aclean-upspin-off (the“Spin-off” and, together with the exchange offer, the “Distribution”) on a pro rata basis to holders of McKesson Common Stock whose shares of McKesson Common Stock remain outstanding after consummation of the Exchange Offer.
Immediately following the Distribution, all shares of SpinCo Common Stock will be converted into an equal number of shares of common stock of the Company, par value $0.001 (the “Change Common Stock”), in the Merger. After the completion of the Merger, Change Healthcare will be a wholly-owned subsidiary of the Company, and the holders of McKesson Common Stock who participate in the Exchange Offer or who receive SpinCo Common Stock in theSpin-off, if applicable, will own approximately 51% of the Change Common Stock on a fully-diluted basis.
The Distribution is intended to be executed via atax-free distribution of SpinCo Common Stock to holders of McKesson Common Stock for U.S. federal income tax purposes. The Merger is intended to qualify as a “reorganization” for U.S. federal income tax purposes.
The Separation Agreement
On February 10, 2020, in connection with the commencement of the Exchange Offer, McKesson, SpinCo, the Company, Change Healthcare (and certain of its affiliates), entered into a Separation and Distribution Agreement (the “Separation Agreement”), which provides the material terms for the Distribution.
Subject to the terms and conditions of the Separation Agreement, prior to consummating the Distribution and completing the Merger, to the extent not already completed, McKesson will transfer to SpinCo all of its direct or indirect interest in Change Healthcare. In addition, McKesson will commence the Exchange Offer and, to the extent that any shares of SpinCo Common Stock are not exchanged in the Exchange Offer, after giving effect to the Exchange Offer, McKesson will distribute the remaining shares of SpinCo Common Stock on a pro rata basis to the holders of outstanding shares of McKesson Common Stock in theSpin-off. McKesson, in its sole discretion, will determine the terms of the Exchange Offer, including the number of shares of SpinCo’s Common Stock that will be offered for each share of McKesson Common Stock.
The Separation Agreement also sets forth other agreements between McKesson, SpinCo and the Company related to the transactions, including provisions concerning the termination and settlement of intercompany accounts and financial instruments and the resignation of McKesson personnel from SpinCo prior to the Distribution. The Separation Agreement also sets forth agreements that govern certain aspects of the relationship between McKesson and the Company after the Distribution, including provisions with respect to litigation, access to information, confidentiality and dispute resolution.