Continuing the tempo of the previous week, and perhaps signaling a shift of focus to the first quarter financial reporting season, the week ended April 11 unfolded only a few major deals, and majority of them involved drug or medical devices makers.
Japanese drug maker Takeda Pharmaceutical Co. Ltd. revealed one of the biggest acquisitions, announcing a $8.8 billion agreement to buy blood cancer drug maker Millennium Pharmaceuticals, Inc. With its eyes fixed on the biosurgery market, Kinetic Concepts, Inc. disclosed that it agreed to acquire LifeCell Corp. for $1.7 billion in cash. Swiss drug maker Novartis AG also said it agreed to buy a 24.85% stake in Alcon Inc., by paying $11 billion.
Some of the other related announcements came from Devon Energy Corp., Nuance Communications, Inc., EMC Corp., St. Jude Medical, Inc., Danka Business Systems PLC and TriZetto Group.
Kinetic Concepts To Buy LifeCell For $1.7 Bln
With the objective of entering the fast-growing biosurgery market, medical technology company Kinetic Concepts, Inc. (KCI) said on Monday that it agreed to acquire LifeCell Corp. (LIFC) for $1.7 billion in cash.
In the pre-market hours, LifeCell stock surged over 16% on the buyout news. The stock that closed Friday at $43.15, opened Monday's regular trade at $50.50, reached a high of $50.55, before closing at $50.41 on 20.24 million shares. KCI closed Monday's trade at $49.57, up from the previous close of $47.02, on 3.61 million shares.
As per the agreement, Kinetic Concepts will pay $51 per LifeCell share. This marks an 18% premium to LifeCell's closing price on April 4 and a 26% premium over the 90-day volume weighted average trading price. Boards of both companies have unanimously approved the transaction.
Once the deal is completed, LifeCell will operate as a new global biosurgery division within Kinetic Concepts. The transaction is expected to be initially dilutive to cash earnings per share. It is estimated to become accretive to cash earnings per share during 2009 and significantly accretive in 2010 and thereafter. On a GAAP basis, the deal is expected to become accretive to earnings per share in 2010.
The merger is also expected to diversify Kinetic Concepts' future revenue. The acquisition would bring LifeCell's best-seller AlloDerm, made from recovered human tissue and used in breast reconstruction, in to the fold of Kinetic Concepts. AlloDerm generated $167 million in revenue for LifeCell last year.
Kinetic Concepts, the maker of wound-care devices, would be additionally benefited by LifeCell's new product Strattice, which is believed to have the potential to transform the tissue regeneration industry.
On Tuesday, Wachovia Securities upgraded Kinetic stock to “Outperform” from “Marketperform”, while reducing their estimates for the company, reported newratings.com. Reflecting the expected dilution from the LifeCell acquisition, the analysts reduced their earnings per share estimates for the company from $3.88 to $3.44 and from $4.41 to $3.85, for 2008 and 2009 respectively, yet said that the market share losses and pricing pressure at the company's VAC business are likely to be less severe than what the current valuation of the company's stock reflects. As for LifeCell, a Piper Jaffray analyst on Tuesday downgraded the stock to "Neutral" from "Buy."
Novartis to buy 25% stake in Alcon for $11 bln
Swiss drug maker Novartis AG (NVS) on Monday said it agreed to buy a 24.85% stake in Alcon Inc. (ACL), the world's largest and most profitable eye care company, from Nestlé S.A. (NSTR.L, NSRGF.PK, NSRGY.PK) for $143.18 per share or $11 billion in cash. Novartis will also have the right to acquire Nestlé's remaining 52% stake in Alcon for a fixed price of US$ 181 per share, amounting to about US$ 28 billion.
Novartis, which so far in the year lost 17%, fell 75 centimes or 1.4%, to 51.65 Swiss francs at the close of Zurich trading. Nestle rose 5 francs or 1%, to 516.5 francs. Alcon shares closed Monday's regular trade on NYSE at $150.63 on 1.45 million shares. The stock opened the trade at $154.89, higher from the previous close of $148.44.
A two-step transaction will make Novartis the majority shareholder of Alcon with 77% stake or 298.1 million shares as of April 4, 2008. Following the deal, Alcon will become a majority-owned subsidiary of Novartis. Novartis intends to use cash reserves and loans of $5.5 billion to finance the purchase.
The deal will help Novartis reduce reliance on pharmaceutical products. The company is already faced with product delays and generic competition. Acquiring all the Alcon shares from Nestle, will make Novartis the world's biggest maker of eye-care products, including contact lenses and treatments for glaucoma.
Karl Heinz Koch, an analyst at Bank Vontobel AG in Zurich, thinks this is an attractive deal at attractive conditions, reported Bloomberg. He feels the agreement fits into the strategy of further diversification. Novartis will be able to count on cash flow long term, and that makes it attractive, Koch added.
Standard & Poor's on Monday reduced Novartis' long-term corporate credit rating to AA- from AAA, basing the decision on the unexpected change in the company's financial policy. Moody's Investors Service also cut Novartis to Aa2 from Aaa.
Nielsen to acquire IAG Research for $225 mln
Privately-held ratings and research firm Nielsen Co. on Monday said it has agreed to acquire IAG Research, Inc., which measures consumer engagement with television programs, national commercials and product placements, for $225 million. The deal is expected to be completed in the second quarter of 2008.
The acquisition will be effected through a merger of privately-held IAG with a wholly-owned subsidiary of Nielsen, in which IAG stockholders will receive cash for their IAG shares. Nielsen currently intends to finance the transaction through issuance of notes, existing facilities and cash on hand. After the merger, the executive team of IAG will join Nielsen.
Devon Energy to sell oil, gas business in Equatorial Guinea to GEPetrol
Devon Energy Corp. (DVN) on Tuesday said it agreed to sell its oil and gas business in Equatorial Guinea to GEPetrol, the national oil company of Equatorial Guinea, for $2.2 billion, effective January 1, 2008. DVN closed the day's regular trade at $110.84, up from the previous close of $108.44, on 4.01 million shares.
The deal is expected to be completed by May 30, 2008. The company targets its after-tax proceeds to be about $1.7 billion. Devon has been selling off its assets in West Africa, and had said it hoped to complete the divestitures by mid-year.
Devon's principal asset in Equatorial Guinea is its 23.75% participating interest in the Zafiro offshore oil field, which has estimated proved reserves of 55 million barrels. The company's share of production from that field is currently about 20,000 barrels per day. Other assets that are part of the deal include stakes in two undeveloped offshore blocks.
Nuance Communications to buy eScription for $400 mln
Digital imaging software products developer Nuance Communications, Inc. (NUAN) revealed on Tuesday that it agreed to buy eScription for about $400 million in cash and stock. eScription provides computer aided medical transcription technology. The transaction is expected to close in Nuance's fiscal third quarter 2008.
The purchase cost includes $340 million in cash and $23 million in Nuance stock. Nuance will also assume $37 million in eScription employee stock options.
Nuance, also a speech recognition software maker, expects the deal to enhance its ability to provide advanced transcription solutions. The company expects to streamline clinical documentation with the acquisition and hopes to save the health care industry over $1 billion by 2011.
It is estimated to add between $16.0 million and $18.0 million in non-GAAP revenue in fiscal 2008 and between $63.0 million and $68.0 million in fiscal 2009.
Excluding amortization, stock-based compensation and non-cash taxes, the acquisition is expected to be accretive to earnings by nearly $0.00-$0.01 per share in fiscal 2008 and $0.06-$0.08 per share in fiscal 2009.
EMC to buy Iomega for about $213 mln
EMC Corp. (EMC), a provider of information infrastructure solutions, on Tuesday said it agreed to buy storage and network security solutions provider Iomega Corp. (IOM) for $3.85 per share or about $213 million to expand in the consumer and small business markets. After the acquisition, Iomega will serve as the core of EMC's new Consumer/Small Business Products Division. EMC closed Tuesday's regular trade at $14.84, down from the previous close of $14.90, on 26.88 million shares.
EMC expects Iomega's products, brand name, route to market and industry expertise to enhance its reach in the consumer and small business markets. Iomega, creator of the Zip drive, now focuses on storage devices like portable hard drives and DVD burners. EMC does not expect the deal to have a material impact on its financial results for the full 2008 fiscal year.
Iomega was earlier in a takeover agreement with a consortium led by ExcelStor Great Wall Technology Ltd., which would have led to the Chinese government taking a substantial control of the company. EMC last month made a $3.25 per share offer, which Iomega turned down stating that the offer was too low to overturn its agreement with the consortium. EMC sweetened the bid two times, and Iomega terminated its previous takeover agreement.
St. Jude Medical to acquire EP MedSystems for $92.1 mln
Medical devices maker St. Jude Medical, Inc. (STJ) on Wednesday said it was acquiring EP MedSystems (EPMD), a maker of products for the cardiac electrophysiology market, for about $92.1 million. The companies expect the transaction to close in the third quarter of 2008. As per the agreement, shareholders of EP MedSystems will get $3.00 for each share they own.
The offer price is more than double the closing price of EP MedSystems' stock on Tuesday, which closed at $1.41 on Nasdaq. The shares jumped to $2.86 in trading before the regular trade began on Wednesday. Opening at $2.82, the stock reached a high of $2.90 before closing the regular session at $2.86 on 8.31 million shares. St. Jude shares closed the regular trade on Wednesday at $44.11, down from the previous day's $44.73, on 1.75 million shares.
The shareholders will have the choice of accepting the amount in cash or St Jude Medical common stock. If they opt for a cash-stock combination, it is subject to a 40:60 pro-ration, where STJ would issue 40% of the total consideration in STJ common stock and 60% in cash.
St. Jude does not expect the acquisition to impact its current earnings outlook for 2008, exclusive of a special charge for in-process research and development. The company has approved an additional stock buyback authorization of $50 million to make up for the shares issued in the deal.
For St. Jude, which makes medical devices for heart-related and neurological conditions, the acquisition will help its presence in the irregular heartbeat devices market. EP MedSystems will become a part of the atrial fibrillation division of St. Jude.
Konica Minolta to buy Danka Office Imaging for $240 mln
British office imaging equipment supplier Danka Business Systems Plc (DANKY.OB, DNK.L) on Tuesday said it signed a definitive agreement to sell its U.S. unit, Danka Office Imaging Co. or DOIC, to copier and printer maker Konica Minolta Business Solutions U.S.A., Inc. for about $240 million.
Danka Business Systems opened the regular trade at 0.50 p, much below the previous day's closing price of 3.30 p, trended in a range of 1.00 p-1.50 p before finishing up at 1.13 p on 925,300 shares. Konica Minolta shares closed up 0.5% at 1,510 yen.
The deal is expected to close by June 30, 2008, subject to regulatory and other closing conditions, in both the U.S. and the U.K. Once the deal is completed, DOIC will become a wholly-owned unit of Konica Minolta.
According to the agreement, Danka Business Systems will sell its stock in DOIC to Konica Minolta, and will distribute the sale proceeds to debt and shareholders through a British process of voluntary liquidation that needs the approval of Danka shareholders.
DOIC is one of the largest independent suppliers of office imaging equipment, software, support, and related services in the U.S. From mid-2008, Konica Minolta will supplement the product mix including network-ready multi-function peripherals and network printers in DOIC distribution network markets.
The deal will help Konica Minolta expand its customer base in the U.S. and thus take on larger rivals like Xerox Corp. (XRX), Canon Inc. and Ricoh Co Ltd. The company can also widen the range of services and support capabilities it offers. It already has a strong sales network in the U.S. for office gear and production printing.
Takeda to buy Millennium Pharma for $8.8 bln
Millennium Pharmaceuticals, Inc. (MLNM) on Thursday revealed a definitive agreement to be acquired by Japan's largest drugmaker Takeda Pharmaceutical Co. Ltd. (TKPHY.PK, TKPHF.PK) for about $8.8 billion through a cash tender offer of $25 per share.
The offer price marks 52.9% premium on Millennium's closing share price on Wednesday. Millennium rose the most in six years, climbing to $7.99 or 49% to close at $24.34.
The transaction is anticipated to close in the second-quarter of 2008. Upon the completion of the transaction, Millennium will become a wholly-owned subsidiary of Takeda, but will continue operations as a standalone business unit.
Les Funtleyder, an analyst with Miller Tabak & Co. in New York, in an interview to Bloomberg said the weak dollar against the yen is making U.S. biotech very attractive to potential Japanese buyers.
The deal is expected to help Takeda's strategy to strengthen its oncology business. Millennium's blood-cancer medicine Velcade, its only approved product, generated more than $800 million last year. Takeda is facing generic competition to its best-selling Actos diabetes pill. Actos had sales of $3.4 billion last year, and its patent is scheduled to expire in three years. Velcade is expected to soothe the situation for the Japanese drug maker.
Millennium also has other promising experimental drugs for cancer, heart disease, gastro-intestinal problems and rheumatoid arthritis, but they are not expected to get regulatory approval before 2011.
Mitsuo Ohmi, a drug analyst at Japan Advisory LLC, told Bloomberg that though Millennium is a leader in genome-based drug discovery with promising drugs in early development, Takeda still needs to do a little more to fully cover the loss of sales once Actos's patent expires.
Kumi Miyauchi, a drug analyst with Daiwa Institute of Research in Tokyo, feels that since Takeda faces the expiration of the Actos patent, it needs to make effective use of its financial resources to make up for it. Competition is severe, especially in the cancer drug business, so Takeda has had to speed things up, Miyauchi added, reported Bloomberg.
Masatake Miyoshi, a Tokyo-based equities analyst at Merrill Lynch Japan Securities on Thursday lowered his recommendation on Takeda to ``Sell'' from ``Buy''. Takeda is being reviewed for possible downgrade by Moody's Investors Service.
On Thursday, brokerage Friedman, Billings, Ramsey downgraded Millennium shares to “Market Perform” from “Outperform” with a new price target of $25. Based on analyst Jim Reddoch's estimates, the offer represents about 6x peak revenues for Millennium's two main revenue drivers - Velcade and MLN-0002, which is a minimal premium over the 5x peak commonly seen with quality biotechs. Reddoch feels there is a 25% chance that a higher bidder will surface.
TriZetto to be taken private for $1.4 bln
TriZetto Group, Inc. (TZIX), a provider of Internet hosting and Web-based software for health-care clients, on Friday said it agreed to be acquired by private equity firm Apax Partners for about $1.4 billion. TriZetto's Board approved the transaction, which is expected to take between four and six months for completion.
TriZetto shareholders will receive $22.00 per share in cash, which marks a 29% premium over the 30 calendar-day average closing price of the company's stock. The offer price also represents a premium of 24.5% over TriZetto' closing share price on Thursday.
Following the announcement, TriZetto shares surged 19% to $21 before the regular trade began. The stock moved in the range of $19.86-$20.77 for the day, before finishing up at $20.39 on 11.06 million shares. The stock dropped six cents in the extended session.
