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MDS (Toronto) and Molecular Devices (Sunnyvale, California) reported signing a definitive agreement for MDS to acquire Molecular Devices, a provider of measurement tools for high-content screening, cellular analysis and biochemical testing, in a $615 million cash transaction.

MDS expects to acquire all of the common shares of Molecular Devices for $35.50 a share. The merger agreement has been unanimously approved by the boards of both companies. MDS will begin a cash tender offer for all of the outstanding shares of Molecular Devices

The total purchase price is made up of $585 million to purchase outstanding shares plus $30 million to purchase outstanding stock options. Excluding normal one-time merger-related expenses, the transaction is expected to be modestly accretive in 2007. It is expected to be significantly accretive in 2008 and beyond.

The planned acquisition marks a significant expansion for MDS, the company said. It plans to create a new business unit that will combine the Molecular Devices and MDS Sciex businesses. It will be led by the current president of MDS Sciex, Andy Boorn, PhD, who will oversee its integration and management. The combined organization will have more than 1,100 employees, including more than 250 scientists and engineers.

In a Monday conference call, MDS President/CEO Stephen DeFalco said, “What an exciting day for MDS. I’m thrilled to be speaking to you about this deal. We have discussed many times our strategy of making acquisitions to support our three core life sciences businesses — and this one is right in our sweet spot.”

He added, “This acquisition transforms Sciex from what is today a category killer in mass spectrometry to a much broader platform for growth.”

During the first year, DeFalco said the combined companies expect to add $190 million in revenues.

For the cash transaction, the money is expected to come from the MDS balance sheet, access to its revolving credit line and the “impending proceeds from the Diagnostics [division] sale,” DeFalco said on the call.

MDS reported in October signing an agreement to sell its Canadian laboratory services business, MDS Diagnostic Services, to Borealis Infrastructure Management (Toronto) in a C$1.325 billion transaction (Medical Device Daily, Oct. 10, 2006). MDS said at the time that the move was designed to shift the company’s focus to the life sciences market.

“One of the most exciting parts of this deal is access to the high-content screening market,” DeFalco said. “Screening is a $2.9 billion market, and the fastest-growing part of it is high-content, which is about a $300 million market, where Molecular Devices is tied for a first-place position.”

Also, he said, in addition to a very strong intellectual property portfolio, high single-digit organic growth and a track record of product innovation, Molecular Diagnostics brings “access to a direct sales and support team of over 230 people who are positioned in the most attractive life sciences markets around the world.”

By acquiring Molecular Devices, with its “strong brand recognition and leading-edge products and capabilities,” MDS said it will strengthen its leadership position as one of the top global providers of life sciences solutions. It will now offer systems that provide high-content screening, cellular and biochemical testing for leading drug discovery and life sciences laboratories in pharmaceutical, biotechnology, academic and government institutions.

Molecular Devices has an installed base of 100,000 instruments and markets its products globally through its sales and marketing offices in the U.S., UK, Germany, South Korea, China, Japan, Australia and Brazil.

MDS said it expects to realize cost synergies in the range of C$10 million to C$12 million (US$7 million) in fiscal 2007, primarily through the elimination of Molecular Devices’ public company costs, related corporate infrastructure and the opportunity to leverage “significant capabilities” across the combined global organization. In the four quarters ending Sept. 30, 2006, Molecular Devices reported revenues of $185 million and EBITDA of $38 million.

The transaction is subject to regulatory and other customary closing conditions and is expected to close in 2Q07.

Merrill Lynch & Co is financial advisor to MDS, while Ropes & Gray is serving as legal counsel to the company in this transaction. UBS Investment Bank is acting as exclusive financial advisor to Molecular Devices, with Cooley Godward Kronish as legal counsel.

In other dealmaking news:

• HealthSouth (Birmingham, Alabama) said it has entered into a definitive agreement with Select Medical (Mechanicsburg, Pennsylvania) a privately owned operator of specialty hospitals and outpatient rehabilitation facilities, to sell HealthSouth’s Outpatient Rehabilitation Division for about $245 million in cash.

The transaction is expected to be completed in 60 to 90 days, and is subject to customary closing conditions, including regulatory approval. The purchase price is subject to adjustment based on the division’s net working capital on the closing date.

HealthSouth’s Outpatient Rehabilitation Division is a network of about 600 facilities in 35 states and the District of Columbia that provides rehabilitative care for general orthopedic and sports injuries and conditions, as well as work-related injuries.

Upon completion of the transaction, Select will be the leading operator of outpatient rehabilitation clinics in the U.S., with more than 1,100 locations in 37 states and the District of Columbia.

“The signing of this definitive agreement is an important step in [our] de-leveraging plan. By reducing our long-term debt, we will be able to focus our resources on enhancing our position as the leader in inpatient rehabilitative care,” said HealthSouth President/CEO Jay Grinney. “The auction process was thorough and competitive and we are pleased that Select Medical emerged as the winning bidder. We look forward to working with them to ensure a smooth and efficient transition.”

The execution of the agreement with Select Medical is the first step in HealthSouth’s plan, disclosed in August 2006, to reposition the company as a post-acute care provider. The company continues to evaluate other strategic alternatives that could include the spin-off, sale or other disposition of its Surgery Division, together with its previously reported determination to divest its Diagnostic Division.

• Varian Medical Systems (Palo Alto, California) reported completing the acquisition of Accel Instruments (Bergisch Gladbach, Germany), a privately held supplier of scientific research instruments and proton therapy systems for cancer treatment.

Varian paid about $30 million to acquire 100% of Accel, including its bank debt.

“We are pleased to add this promising new business to our growth portfolio,” said Tim Guertin, president/CEO of Varian Medical Systems. “With Accel Instruments, we have the opportunity to build a several hundred million dollar business based on improving cancer care with a clinically practical and affordable system for proton therapy.”

Accel has about $30 million in annual revenues. Varian said it expects that the addition of Accel’s operations will reduce earnings per diluted share by about 6 cents to 7 cents to between $1.82 and $1.85 in FY07, be about neutral in FY08, and be accretive thereafter. Results for Accel will be included in Varian’s “other” business category.

Accel has about 250 employees. The business will report to Varian Vice President Lester Boeh, who is responsible for managing the company’s portfolio of emerging businesses.

Varian Medical Systems is a maker of medical products for treating cancer and other medical conditions with radiotherapy, brachytherapy and radiosurgery. The company also is also a supplier of X-ray tubes and digital detectors for imaging in medical, scientific and industrial applications.