A third party is seeking to acquire aesthetic medical device maker Thermage (Hayward, California) in a potential move that could disrupt the company's pending merger with Reliant Technologies (Mountain View, California).

The unsolicited, non-binding proposal calls for the acquisition of all of the outstanding shares of Thermage for a price of $5.50 per share in cash or a combination of cash and stock, subject to due diligence and negotiation of a definitive agreement making the deal $132 million.

Thermage did not disclose the name of the bidder.

The deal could be enticing to Thermage, especially since earlier this month shares of the company were at $2.33. The $5.50-a-share bid represents an 82% premium over Wednesday's closing price. At presstime, the stock was at $4.30 a share.

Thermage said its board of directors will consider the proposal in a manner consistent with its fiduciary duties and in accordance with its obligations under its merger agreement with Reliant. Following its review of the unsolicited proposal, Thermage's board will respond in due course.

Last month, the boards of both Thermage and Reliant approved a deal that would see Thermage buy Reliant for about $95 million in cash and stock (Medical Device Daily, July 8, 2008). It also would take on 7 million in debt and will loan Reliant $5 million.

Certain Thermage stockholders, holding more than 33% of the outstanding shares of the company, have agreed to vote in favor of the Reliant transaction. Prior to this latest development, the proposed transaction was expected to close during 4Q08.

The merger agreement with Reliant prohibits Thermage from entering into discussions with a third party concerning an alternative transaction unless the Thermage board reasonably determines in good faith that the acquisition proposal constitutes or is reasonably likely to lead to a superior proposal and that the failure to take such action would reasonably be expected to be a breach of its fiduciary duties under Delaware law.

"We are not surprised to see this bid, given the marginal strategic rationale for the pending acquisition of Reliant and Thermage's current valuation," Leerink Swann & Co. analyst Isaac Ro said in a note to investors.

He reaffirmed a "Market Perform" rating on the stock and recommended that investors not "chase the shares."

But if Thermage did pursue the alternative proposal, the company would face penalties for breaking the original deal with Reliant.

"If Thermage walks away from Reliant, then Thermage would have to pay a break-up fee of $3 million to Reliant," said Larry Haimovitch, president of Haimovitch Medical Consultants (Mill Valley, California) and a regular contributor to MDD.

Haimovitch speculated that the unknown player in this power play is medical aesthetic devices maker Syneron (Yokneam, Israel).

"The press release mentioned the company wanting shares, so we know that it's a public company and Syneron is the only company [in that market space] that would have access to huge amounts of money," he told MDD.

Thermage makes an anti-wrinkle skin-tightening device.

In other dealmaking activity:

• Gentiva Health Services (Melville, New York) a provider of comprehensive home health services, reported that it has signed a definitive agreement with Water Street Healthcare Partners, a Chicago-based private equity firm, focused exclusively on the healthcare industry, whereby Water Street will acquire a controlling 69% interest in Gentiva's CareCentrix ancillary care benefit management business in a transaction valued at about $147 million.

The separation of CareCentrix positions Gentiva to sharpen its focus on accelerating growth in its core home care and hospice provider businesses, both organically and through acquisition. Gentiva will receive $84 million in cash and a $25 million interest-bearing seller note upon the closing of the transaction.

In addition, Gentiva will retain 31% of the capital stock in CareCentrix having an ascribed value of $26 million. Of the $84 million in cash proceeds, $26 million will be retained by the company and be available to fund future acquisitions. The remaining cash proceeds will be used to repay term loan debt and reduce the company's leverage ratio.

CareCentrix was started by Gentiva in 1996.

In addition to the $135 million in consideration paid to Gentiva in the form of cash, the seller note and retained capital stock, the $147 million total value of the transaction also includes an aggregate of $12 million representing capital to be invested in CareCentrix as well as transaction- related costs. Pending necessary approvals, the transaction is expected to close by the end of the third quarter. Funding sources for the transaction will consist of a $58 million equity investment by Water Street and nearly $38 million in CareCentrix senior debt.

Concurrent with the announced divestiture, CareCentrix has signed an extension of its contract with Cigna HealthCare, which will provide for the continued coordination and delivery of homecare services to Cigna members through January 2014. The extension amends a previous agreement that was scheduled to expire Jan. 31, 2011.

Water Street said it expects no significant changes in CareCentrix's operating structure following completion of the transaction.