Hologic‘s (NSDQ:HOLX) $3.7 billion move to acquire Gen-Probe (NSDQ:GPRO) failed to ignite Wall Street today, as investors reacted to the deal and to a dramatic swing from 2nd-quarter profits last year to a net loss during Q2 2012.
The Bedford, Mass.-based women’s health giant said earlier today that it’s agreed to an $82.75-per-share bid for Gen-Probe, a 20% premium over GPRO’s closing price Friday. But that news was overshadowed by Hologic’s report of a $40.3 million, 15¢-per-share loss for the 3 months ended March 24.
That compares with profits of $82.4 million, or 31¢ per share, during Q2 2011.
The losses were driven in part by an $18.3 million charge on Hologic’s move to ditch its Adiana permanent female sterilization system after it lost a patent infringement lawsuit to Conceptus (NSDQ:CPTS).
A jury awarded Conceptus $18.8 million and royalties of 20% in October 2011 after finding that the Adiana device infringed on 5 CPTS patents, and Judge William Alsup of the U.S. District Court, Northern District of California, denied Hologic’s motion to overturn the jury decision.
Today Hologic said it struck a deal with its rival to accept a permanent injunction barring it from selling the device, in return for Conceptus agreeing to forgo the nearly $19 million jury award. Hologic also agreed to license the Adiana IP to Conceptus, according to a press release.
"In March, after determining the product was not financially viable and would not become so in the foreseeable future, the company decided to discontinue the manufacturing, sales and marketing of its Adiana system," according to the release. "Hologic expects to complete the wind down of its Adiana business over the next 6 weeks. The parties have also agreed to dismiss the false patent marking case between them."
The news sent shares of Gen-Probe and Conceptus shares up sharply, but slashed more than 10% from HOLX stock. Gen-Probe shares were up 18.8% to $81.61 and CPTS shares were up 25.0% to $18.98 as of about 11:40 a.m. today. HOLX shares fell to $19.04, down 10.3% on the day.
Revenues rise 7.4%, Gen-Probe deal expected to boost bottom line next year
Hologic said its earnings per share, excluding 1-time items, were 33¢, in line with analysts’ expectations. Revenues rose 7.4% to $471.2 million, compared with $438.7 million during the same period last year.
The Q2 2012 net losses, apart from the Adiana move, were also driven by nearly $203 million in amortization, interest and acquisition charges, Hologic said.
The deal to acquire Gen-Probe is expected to add 20¢ to Hologic’s adjusted EPS in the first year following the deal’s completion. The deal will also drive about $75 million in cost savings as the companies integrate in the 3 years after the merger.
"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 3 years," the company said in a statement.
"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," Hologic president & CEO Rob Cascella said in prepared remarks. "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."
Cascella will stay in the corner office, with Gen-Probe chairman & CEO Carl Hull running Hologic’s newly bolstered diagnostics business. Hologic will keep its headquarters in Bedford, Mass., maintaining "a significant presence" in San Diego, Gen-Probe’s home.
Guidance affirmed for fiscal 2012
Hologic said it expects to post adjusted EPS of 34¢ during its fiscal 3rd quarter, on revenues of between $475 million and $480 million, for expected sales growth of 5% to 6%. Analysts are forecasting Q3 adjusted EPS of 35¢.
For the full year, the company re-affirmed its prior guidance of adjusted EPS at between $1.36 and $1.38, on sales of $1.9 billion to $1.93 billion. That represents sales growth of 6% to 8%.