Pharmaceutical services giant Quintiles will no longer be classified as a "controlled company" after chairman and founder Dennis Gillings and a trio of private equity funds complete plans to sell a chunk of their shares.
After the sale, which the Durham-based company outlined this week in plans filed with the Securities and Exchange Commission, the ownership stake of those shareholders would fall below 50 percent.
As a controlled company under New York Stock Exchange rules, Quintiles has been exempt from certain corporate governance requirements designed to protect shareholders. For example, a majority of the company's board of directors isn't required to be so-called independent directors.
Although the board's compensation and audit committees currently consist of independent directors, Quintiles "will need to build completely independent committee membership within one year," Robert W. Baird & Co. analyst Eric Coldwell noted in a research note.
Collectively, the shareholders are selling 13.3 million shares, led by Gillings, the company's single largest shareholder, who is selling 4.1 million shares. Based on the closing price of Quintiles shares on Tuesday, Gillings would reap more than $240 million from the sale.
The other shareholders that plan to sell stock are private equity firms Bain Capital, TPG Funds and 3i Funds. Quintiles shares closed Wednesday at $57.06, down $1.79. The stock is up 23 percent this year.
Quintiles wouldn't reap any of the proceeds from the stock sale. However, in conjunction with the sale, it has agreed to repurchase approximately $250 million in stock from Citigroup, which is underwriting the secondary stock offering.
Coldwell estimates that Quintiles will end up repurchasing about 4.4 million shares. Quintiles plans to use a combination of cash plus money borrowed under its revolving credit facility for the repurchase.
In the wake of the stock offering, Coldwell raised his 12-month price target for Quintiles stock by $1 to $68. He rates the stock the equivalent of a buy.
Quintiles is the world's largest contract research organization, or CRO, helping pharmaceutical and biotechnology companies test experimental drugs and analyze the results. It also assists those companies with selling and marketing medicines after they receive regulatory approval.