By AMANDA PEDERSEN
Medical Device Daily Senior Staff Writer
In what could be the biggest medtech deal of the year so far, the boards of Hologic (Bedford, Massachusetts) and Gen-Probe (San Diego) have approved an agreement under which Hologic would acquire all of the outstanding shares of Gen-Probe for $82.75 a share in cash, or a total enterprise value of about $3.7 billion.
The all-cash deal is expected to be funded through available cash and additional financing of term loans and high yield securities. The transaction is expected to be completed in the second half of the calendar year.
Gen-Probe will become a subsidiary of Hologic, which will retain its headquarters in Bedford, Massachusetts, and the combined company will maintain a significant presence in San Diego.
Assuming the acquisition closes as expected, it will be the largest publicly reported deal in the industry so far this year. Roche (Basel, Switzerland) would have have laid claim to that title if it's takeover attempt of Illumina (San Diego) had gone through at almost $6.7 billion (Medical Device Daily, March 30, 2012). Roche decided against extending the offer last month (MDD, April 19, 2012).
Another noteworthy deal reported earlier this year is Asahi Kasei's (Tokyo, Japan) merger agreement to acquire Zoll Medical (Chelmsford, Massachusetts) for about $2.21 billion, expected to close in the second quarter (MDD, March 13, 2012).
The Gen-Probe acquisition delivers a strong growth profile with attractive economics and is expected to be 20 cents accretive to Hologic's adjusted earnings per share in the first fiscal year after close and significantly more accretive thereafter. Hologic also expects the transaction to accelerate top and bottom line growth rates.
The combined company expects to realize nearly $75 million in cost synergies within three years following the close of the transaction. In addition, the combined company expects to have strong free cash flows, which will be used primarily to reduce debt with the expectation to return to pre-transaction leverage levels within three years.
Gen-Probe, a leader in molecular diagnostics products and services, is expected to make a highly complementary addition to Hologic's growing diagnostics portfolio. The combined company will have pro forma LTM revenues of about $2.4 billion, adjusted EBITDA of $822 million (excluding synergies) and offer a wide spectrum of health products globally. The transaction allows Hologic to combine Gen-Probe's superior automation platforms of TIGRIS and PANTHER and extensive menu of sexually transmitted disease (STD) tests, including the APTIMA line of Chlamydia/Gonorrhea (CT/NG), human papillomavirus (HPV) and Trichomonas products, with its strong global market presence and distribution all targeting women's health. In addition, Gen-Probe's PROCLEIX line of HIV, HCV, HBV, and West Nile Virus (WNV) blood screening products and strong partnership with Novartis provide an attractive market, with a global reach and significant growth opportunities for the combined company.
The combined company expects to create additional value through significant cross-selling opportunities, utilizing the combined global sales force and complementary R&D and operational capabilities.
"Gen-Probe is an ideal partner and strategic fit to Hologic's existing diagnostics business and complements our focus on scaling and diversifying our diagnostics franchise," said Rob Cascella, president/CEO of Hologic. "This transaction establishes Hologic as a premier company in STD diagnostics and advances our core focus on women's health. With unique capabilities and an impressive new product pipeline, our combined company will be well positioned globally to capitalize on the fast-growing molecular diagnostics market with an established global infrastructure."
"The combined business will have the ability to accelerate innovation and bring important new products to market sooner than either company could achieve on its own," Cascella told investors and reporters during a Monday morning conference call hosted by both companies.
Cascella noted that Hologic will operate a diagnostics franchise with the growth potential similar to the company's breast health franchise.
"This transaction provides compelling cash value for our shareholders and represents an outstanding opportunity for our business," said Carl Hull, chairman/CEO of Gen-Probe. "Together, Gen-Probe and Hologic will be very well-positioned to pursue a complete range of diagnostic opportunities in women's health, with a stronger focus on the dynamic molecular diagnostics market. Specifically, we are excited about the opportunity to increase demand for our APTIMA women's health products based on Hologic's global commercial presence. Our employees will benefit as part of a larger diversified organization with the necessary scale and resources to be a leader in today's rapidly evolving global healthcare marketplace."
Cascella will continue as president/CEO of Hologic and Hull will oversee the company's combined diagnostics business.
During the conference call Monday, Bill Bonello, an analyst with RBC Capital Markets, asked the leaders of both companies about the way they see the HPV market playing out and if that influenced the deal at all. Bonello noted that initially spectators anticipated the HPV decision to be completely left to the labs, whereas the labs are thinking it will be more of a physician preference.
Hull said the issue is one that Gen-Probe thought a lot about with regards to this deal. "To me, it's the best of both worlds, right? You don't have to take a position on which part of that piece is correct - is it the lab driving it or is the physician driving it - we have a unique opportunity now in this combination to cover both ends of the spectrum and we will do so in ways that meet the needs of both of those important segments of customers," Hull said.
Adding to Hull's response, Cascella said Hologic is "very optimistic that we can drive compliance, as well as utilization, with our physician sales team and really leverage the already wonderful presence that Gen-Probe has at the lab front."
The all-cash transaction is expected to be funded through available cash and additional financing of term loans and high yield securities. Hologic has secured fully committed financing from Goldman Sachs Bank USA and Goldman Sachs Lending Partners.
Goldman, Sachs & Co. and Perella Weinberg Partners are acting as financial advisors to Hologic and Brown Rudnick and Jones Day are acting as legal advisors. Morgan Stanley & Co. is acting as financial advisor to Gen-Probe and Skadden, Arps, Slate, Meagher & Flom and Cooley are acting as legal advisors.
Published May 1, 2012