Covidien plc (NYSE:COV) agreed to acquire ev3 Inc. (NSDQ:EVVV) for about $2.6 billion in cash in a move that substantially expands its footprint in the peripheral vascular market.
Mansfield, Mass.-based Covidien will pay $22.50 per share for ev3, which makes stents, catheters and balloons to treat the peripheral and neurological vasculature. The per-share price is a nearly 11 percent premium over ev3’s $18.92 closing price May 28. Since June 1, 2009, with shares at $9.41, ev3’s stock rose more than 101 percent. Shares were up 17.5 percent to $22.23 in mid-morning trading today.
The $2.6 billion purchase price includes the cash ev3 had on hand, according to a joint press release. The Plymouth., Minn.-based firm reported $116.8 million in cash and equivalents as of April 4, the close of its most recent quarter.
Covidien chairman, president and CEO Richard Meelia said the deal is part of the company’s strategy to win business from vascular surgeons, neurosurgeons, interventional cardiologists and interventional radiologists, according to prepared remarks. If the deal is consummated, expected July 31, ev3 will be integrated into Covidien’s vascular products segment.
The deal is the latest in Covidien’s strategy to jettison certain business lines and expand in other, core areas. The company also said today it would sell its Sleep Therapy continuous positive airway pressure and Bi-level products to Luxembourg-based PH Invest and closed the sale of its U.S. radiopharmacies business to Triad Isotopes Inc. of Orlando, Fla. Last week the company sold its specialty chemicals business to New Mountain Capital LLC for $280 million in cash.
The ev3 deal is an all-cash tender offer slated to be followed by a second-step merger. Both companies’ boards have OK’d the deal, with ev3’s directors and management agreeing to sell their stakes in the firm. Stockholders with Warburg, Pincus Equity Partners LP, who own a roughly 24 percent stake, also agreed to tender their shares.
Covidien said it expects the deal to hit fiscal 2010 earnings per share by 5 percent to 8 percent, somewhat offset by "the underlying strength of Covidien’s existing businesses," according to the press release. Adjusted earnings per share are expected to take a hit of 10 cents to 15 cents in fiscal 2011. The company will finance the purchase with cash on hand, debt and credit.