Q6: As stated on page 5 of the case, RadNet needed to pay Radiologix shareholders $82.6 million plus fees and expenses of $24.4 million, which added up to a total of $107 million. How much new debt did RadNet need to issue to fund this transaction (not considering debt refinancing)? Financing the Acquisition The acquisition was structured as a cash and stock merger through which Radiologix shareholders would receive in aggregate $43.0 million in cash and 22.6 million RadNet shares (a one-for-one share exchange). Based on RadNet's closing share price at the time of the announcement ($1.75), the total value paid to Radiologix shareholders was $82.6 million, and the total purchase price was $107.0 million inclusive of fees and expenses. The size of the acquisition would trigger repayment requirements on the outstanding debt, and as a result, the merger financing would also have to provide for repayment of existing debt (Exhibit 7). The use of funding proceeds is shown in Table 2. Table 2. Use of funding proceeds (in millions of dollars). $43.0 2.5 Cash equity purchase price for Radiologix (outside of share exchange) Refinance RadNet revolver Refinancing of RadNet first-lien and second-lien term loans and convertible subordinated debt Refinancing of Radiologix senior notes and convertible debt Legal and banking fees Total uses 162.1 170.3 24.4 $402.3 Source: Created by case writer. Exhibit 7 RADNET, INC.: FINANCING AN ACQUISITION Historical Balance Sheet (in millions of dollars) RadNet July 30, 2006 Radiologix June 30, 2006 0.0 Assets Cash and cash equivalents Restricted cash Accounts receivable Other current assets Total current assets 25.7 3.2 28.9 43.7 5.8 41.2 11.4 102.1 68.6 62.8 23.1 - Property and equipment, net Goodwill Other intangible assets, net Other assets Total assets 52.4 11.8 126.6 14.1 237.2 Liabilities and stockholders' equity Accounts payable Accrued expenses Other current liabilities Total current liabilities 26.7 1.8 8.8 16.6 0.7 26.1 28.6 Existing debt refinanced in merger: Line of credit (revolver) FL term loan (due March 2011, LIBOR + 400) SL term loan (due March 2012, LIBOR + 700) Convertible subordinated debt (due June 2008, 10.5%) Senior notes (due December 2008, 10.5%) Convertible subordinated debt (due July 2009, 8%) 6.9 86.0 60.0 16.1 158.3 12.0 5.4 0.0 0.1 8.8 Capitalized lease obligations Other long-term liabilities Total long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Weighted average shares outstanding (in millions) Basic Diluted 174.5 (76.4) 126.6 179.2 32.0 237.2 41.7 22.6 41.7 22.6 $2.5 million under existing revolver was expected to be retired. The $2.5 million would be replaced by the same amount of borrowing under a new five-year, $45 million revolving- credit facility that was negotiated as part of the merger financing. Q6: As stated on page 5 of the case, RadNet needed to pay Radiologix shareholders $82.6 million plus fees and expenses of $24.4 million, which added up to a total of $107 million. How much new debt did RadNet need to issue to fund this transaction (not considering debt refinancing)? Financing the Acquisition The acquisition was structured as a cash and stock merger through which Radiologix shareholders would receive in aggregate $43.0 million in cash and 22.6 million RadNet shares (a one-for-one share exchange). Based on RadNet's closing share price at the time of the announcement ($1.75), the total value paid to Radiologix shareholders was $82.6 million, and the total purchase price was $107.0 million inclusive of fees and expenses. The size of the acquisition would trigger repayment requirements on the outstanding debt, and as a result, the merger financing would also have to provide for repayment of existing debt (Exhibit 7). The use of funding proceeds is shown in Table 2. Table 2. Use of funding proceeds (in millions of dollars). $43.0 2.5 Cash equity purchase price for Radiologix (outside of share exchange) Refinance RadNet revolver Refinancing of RadNet first-lien and second-lien term loans and convertible subordinated debt Refinancing of Radiologix senior notes and convertible debt Legal and banking fees Total uses 162.1 170.3 24.4 $402.3 Source: Created by case writer. Exhibit 7 RADNET, INC.: FINANCING AN ACQUISITION Historical Balance Sheet (in millions of dollars) RadNet July 30, 2006 Radiologix June 30, 2006 0.0 Assets Cash and cash equivalents Restricted cash Accounts receivable Other current assets Total current assets 25.7 3.2 28.9 43.7 5.8 41.2 11.4 102.1 68.6 62.8 23.1 - Property and equipment, net Goodwill Other intangible assets, net Other assets Total assets 52.4 11.8 126.6 14.1 237.2 Liabilities and stockholders' equity Accounts payable Accrued expenses Other current liabilities Total current liabilities 26.7 1.8 8.8 16.6 0.7 26.1 28.6 Existing debt refinanced in merger: Line of credit (revolver) FL term loan (due March 2011, LIBOR + 400) SL term loan (due March 2012, LIBOR + 700) Convertible subordinated debt (due June 2008, 10.5%) Senior notes (due December 2008, 10.5%) Convertible subordinated debt (due July 2009, 8%) 6.9 86.0 60.0 16.1 158.3 12.0 5.4 0.0 0.1 8.8 Capitalized lease obligations Other long-term liabilities Total long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Weighted average shares outstanding (in millions) Basic Diluted 174.5 (76.4) 126.6 179.2 32.0 237.2 41.7 22.6 41.7 22.6 $2.5 million under existing revolver was expected to be retired. The $2.5 million would be replaced by the same amount of borrowing under a new five-year, $45 million revolving- credit facility that was negotiated as part of the merger financing