A second bidder for QHR is a possibility, says Laurentian

More bids may be coming on Kelowna-based electronic medical records player QHR Corp. (QHR Stock Quote, Chart, News: TSXV:QHR) but it’s likely that the company’s deal with Loblaws will stand, says Laurentian Bank Securities analyst Nick Agostino.

Yesterday, Loblaw Companies Ltd. and QHR Corp. announced they had signed an agreement that will see Loblaw will acquire all of the outstanding common shares of QHR for $3.10 a share, a price that values QHR at about $170-million. The figure is a 22 per cent premium to QHR’s August 19 closing price of $2.54.

The deal, which will require 66.6 per cent approval from shareholders, already has the support of of QHR’s board, as well as holders of 23% of QHR shares.

“The future of health care is digital and this strategic investment will make us a better partner to patients and providers,” said Loblaw and Shoppers Drug Mart executive vice-president, pharmacy and health care Jeff Leger. “QHR brings complementary talent and technology to our organization, providing opportunities to establish new business partnerships and drive improved care co-ordination for Canadians.”

Agostino says the acquisition is a strategic fit for Loblaw, noting that the Canadian retail giant currently employs 5000 healthcare professionals and has made a recent shift away from healthcare equipment and now wants to become a leader in digital healthcare. He thinks this desire will trump other interest, if indeed there is any.

“A second bid is possible, but note hurdles exist for Telus, while U.S. EMR players are price sensitive and less likely to bid; IBM in our opinion may have a cleaner path,” says the analyst. “Given the strategic nature of Loblaw’s bid, we believe they would be reactive to any counteroffers.”

The analyst detailed the difficulties Telus may face if it were inclined to put its hat in the ring for QHR.

“The most obvious hurdle is anti-trust related for which Telus, with its ~25k subscribers including QHR and Nightingale, would own about 33% of the Canadian EMR market but only ~15% if the market opportunity is extended to include healthcare professionals in general (total market 180k as per QHR). A bigger hurdle may be on the backend IT network. From our conversation with Loblaw we understand Telus provides significant backend IT network communication services (along with Bell et al) including for the processing of insurance claims at its Shoppers pharmacies. Any counterbid from Telus may stand to disrupt this relationship, to Telus’s detriment. As noted above Telus wants access to this healthcare transactional backend as opposed to the frontend client relationships. A successful win by Loblaw could see Telus seek to formalize the collaboration agreement currently in place between Telus and QHR.”

In a research update to clients today, Agostino changed his rating on QHR from “Buy” to “Tender” and raised his target price on the stock to $3.10, from his previous $3.00.