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Print Edition StoriesTuesday, June 1, 2010
Covidien goes into buy/sell mode
By James M. Connolly
MHT's Julie Donnelly: Life science startups finding investments
Medical device maker Covidien plc, which is legally based in Ireland but run from Mansfield, announced three deals Tuesday in which it is selling off a pair of business units while acquiring a Minnesota company for $2.6 billion.
Covidien (NYSE: COV) said it had reached agreement to acquire ev3 Inc. (Nasdaq: EVVV), a Minneapolis company that develops peripheral vascular and neurovascular technologies.
Under the agreement, Covidien plans to pay $22.50 in cash for each ev3 share for a total of approximately $2.6 billion, net of cash acquired. Covidien expects that the combination with ev3 will provide an additional growth platform for Covidien and is expected to be accretive to both revenue and earnings growth rates.
The transaction will be an all-cash tender offer by a wholly-owned subsidiary of Covidien, followed by a second-step merger. The deal is subject to customary closing conditions, including regulatory approvals, and is expected to be completed by July 31. The boards of both companies have approved the transaction, with the directors and executive officers of ev3 confirming their intention to tender all shares held by them. Stockholders affiliated with Warburg, Pincus Equity Partners LP, who hold approximately 24 percent of ev3’s outstanding common stock, have entered into agreements to tender their shares.
Covidien expects that the transaction, on a GAAP basis, will dilute 2010 and 2011 earnings per share. On a Non-GAAP basis, excluding transaction, restructuring and other costs, Covidien expects the transaction to dilute fiscal 2010 earnings per share by 5 to 8 cents.
Covidien said the merger would add scale to its vascular platform with strong market positions; broaden its product portfolio and pipeline in high-growth market segments; and leverage its own global infrastructure, physician education and training expertise.
In the other two deals, Covidien announced a definitive agreement to sell its Sleep Therapy continuous positive airway pressure (CPAP) and Bi-level products to PH Invest, a privately held company located in Luxembourg.
PH Invest will acquire the CPAP and Bi-level products, including a manufacturing facility in France and related commercial operations in Europe. Products which are sold under the GoodKnight and Sandman brands are included in this agreement.
However, the agreement excludes the sleep interface products sold and marketed under the brand names Adam, Breeze and Dreamfit, which will continue to be sold by Covidien. Financial terms of the transaction were not disclosed. The deal is expected to be completed in the next 90 days and is not expected to have a material effect on operating income or earnings per share for 2010 or 2011.
Covidien also completed the previously announced sale of its radiopharmacies in the United States to Triad Isotopes Inc. of Orlando, Fla. Financial terms of that transaction were not disclosed.
Covidien said its radiopharmacy net sales were $91 million in the first six months of fiscal 2010, and that the transaction is not expected to have a material effect on Covidien’s operating income or earnings per share for fiscal 2010 or 2011.
Covidien said the decision to divest the product lines was made following a review of a number of strategic alternatives. The decision is consistent with Covidien’s strategy to streamline its portfolio and reallocate resources to its faster-growing, higher-margin businesses.
Covidien reported 2009 revenue of $10.7 billion.
Last week, Covidien said it was selling its speciality chemicals division for $280 million cash to an affiliate of New Mountain Capital LLC, a New York private equity firm.
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