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Hills Ltd shares are going gangbusters on its merger plans

Hills Ltd (ASX: HIL) shares skyrocketed over 45% on Tuesday as investors cheered management’s announcement of partnering with United States based Lincor, Inc. to demerge its Hills Health Solutions business and form a newly incorporated company called Lincor Limited.

About Lincor, Inc.

Lincor, Inc. operates under namesake brand Lincor Solutions – a global leader in the development and delivery of point of care patient engagement solutions for hospitals and healthcare delivery organisations.

Lincor Solutions was established in 2003 and has a global presence servicing some 150 hospitals around the world, enhancing the experience of over 2 million patients globally through its proprietary software platform, LINC Technology.

LINC Technology is an end-to-end technology platform which provides patients, nurses and doctors with real time clinical information and patient content, enabling the provision of efficient, low-cost patient care.

Lincor, Inc. has offices in Ireland, France, Canada, the UK and the United States, and plans to make its debut in Australia through the strategic partnership with Hills Health Solutions.

Merger terms

Under the terms of the merger, Hills and Lincor, Inc. will demerge assets and know how to Lincor Limited, an entity to be listed on the ASX. Hills’ shareholders will own approximately half of Lincor Limited following listing, with the remainder to be owned by Lincor, Inc.’s shareholders.

At the same time, Lincor Limited is expected to raise approximately $30 million of new capital to fund global growth, pay transaction costs and repay all existing debt.

The specifics of the transaction are still to be advised and the entire demerger remains conditional at the present time.

New company

If the demerger is approved, Lincor Limited will enable Hills Health Solutions and Lincor Solutions to solidify their existing commercial relationship by creating a vertically integrated Software as a Service (SaaS) provider, vying for market leadership of the healthcare facilities market (which consists of over 15,500 providers).

Although the merger will combine around 1,020 health and aged care facilities, including Healthscope Ltd’s (ASX: HSO) new Northern Beaches Hospital, Lincor Limited’s installed facility base will account for a mere 6.5% of the total potential market, leaving plenty of headroom for growth.

Accordingly, with no debt and a growing health and aged care industry, Lincor Limited shares have serious potential to be snapped up on debut and become the next hot tech-stock like Altium Limited (ASX: ALU) and Class Ltd (ASX: CL1).

Foolish takeaway

Investors buying shares in Hills today are likely doing so to receive shares in Lincor Limited if the demerger proceeds.

Nevertheless, investors must remember that they will ultimately be left holding some Hills shares after the demerger (as it will likely be in-specie), which means investors must consider both sides of the coin before buying.

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Motley Fool contributor Rachit Dudhwala owns shares of Hills Holdings Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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