MDS Inc. plans to broaden its position in life sciences research through a $615 million all-cash acquisition of Molecular Devices Corp.
The offer price of $35.50 per share represented a premium of 48.7 percent to the $23.88 closing price of Molecular Devices' stock on Friday. The stock (NADSAQ:MDCC) gained $11.19 Monday, or 46.9 percent, to close at $35.07.
Molecular Devices, of Sunnyvale, Calif., provides tools for high-content screening, cellular analysis and biochemical testing for use in drug discovery and other life sciences research. It would be integrated into MDS Sciex, one of three business units at Toronto-based MDS. The deal, approved by the boards of both companies, is expected to close in the second quarter.
MDS President and CEO Stephen DeFalco told BioWorld Today his company looked at a number of potential acquisition candidates in 2006 "but were really excited about this one because it was right in our sweet spot. It's a very strong performing company with a number of leading product offerings. "They are broadening our reach in the drug discovery and development areas," DeFalco said. "They have a really good track record of innovation, with a steady flow of new products," he said, adding that 64 percent of revenue at Molecular Devices comes from products launched in the past three years. He also cited the company's financial performance and reputation with customers as reasons for the interest.
The deal with Molecular Devices will be the largest acquisition for MDS, which consists of MDS Sciex, MDS Pharma Services and MDS Nordion.
Joe Keegan, president and CEO of Molecular Devices, said in a conference call, "This acquisition brings great opportunities for our employees and shareholders. We are proud of what we have built here at Molecular Devices and view this as a great opportunity to accelerate our growth and achievement."
Molecular Devices, in releasing third-quarter earnings in October, said it expected 2006 revenues to total $180 million to $185 million, with diluted GAAP earnings per share of $0.50 to $0.55. Third-quarter revenues for the quarter were $45.5 million, an increase of 1 percent compared to the same period the prior year. Keenan said at the time he was disappointed with the results that quarter, but "we continue to believe that we are well-positioned based on the quality of our existing product portfolio and the strength of our expected new product introductions over the next year." He attributed the results to "softer than expected demand from pharmaceutical companies during the quarter" that impacted both drug discovery and life sciences products.
MDS said the move is expected to increase its 2006 pro forma revenues to about $1.2 billion from $1 billion. The acquisition of Molecular Devices would increase the proportion of revenue from the MDS Sciex business from 26 percent to 38 percent of revenues at MDS, making it the company's largest revenue generator. The Pharma Services business would move from 44 percent of revenues to 37 percent, and the MDS Nordion unit from 30 percent to 25 percent.
An important part of the deal for MDS, DeFalco said, is Molecular Devices' sales and support team of 230 people positioned in life science markets on five continents. It also has an attractive mix of hardware, consumables and software, he said. Together they provide a "much broader platform for growth at Sciex," he said.
The purchase price of $615 million would include $585 million for outstanding shares and $30 million for outstanding stock options. MDS said it expects to realize cost synergies of $10 million to $12 million in the 12 months following the acquisition. It also might allow MDS to move some of its manufacturing operations to Asia.
Molecular Devices in July 2004 acquired Axon Instruments Inc. in a deal valued at about $106 million, $64 million of that in stock. Its stock had traded in the $19 to $24 range since falling July 21 from $29.04 to $22.31 on its second-quarter earnings report.