A BB&T

Late summer . . . time for vacations, slowed business activities, lots of downtime, not . . . much . . . going . . . on.

Not! (according to one of the less eloquent expressions currently too frequently heard here in the U.S.).

Late summer 2007 was replete with big deals, either in the works or completed.

The recent wave of consolidations within the diagnostics sector kept rising, with Dade Behring (Deerfield, Illinois) in late July agreeing to be acquired by Siemens (Munich, Germany) for $77 a share, a deal value of about $7 billion (e5 billion). Deal closing is expected in the second quarter of FY08, with Dade to become a unit of Siemens Medical Solutions (SMS; Malvern, Pennsylvania).

Dade provides clinical laboratory equipment and integrated solutions for routine chemistry testing, immunodiagnostics (including infectious disease testing), hemostasis testing and microbiology. Siemens' agreement to buy the company at a 38% premium over the previous day's closing price follows a flurry of other recent consolidations in diagnostics.

"There's no clear leader here, and I think that was one of the drivers for Siemens' decision [to acquire Dade]," Morozov said in a report.

Analysts see Beckman Coulter (Fullerton, California) as one of the last remaining large pure-play stand-alone ciagnostics companies as a future acquisition target by some healthcare conglomerate.

"Demographic changes and increasing demand for higher quality healthcare systems represent a constant driver for growth in this sector," said Peter L scher, CEO of SMS. "Complementing last year's acquisitions of Diagnostic Products Corporation [Los Angeles] and Bayer Diagnostics [Tarrytown, New York], this transaction secures our leading position in the highly attractive healthcare industry. The impact of the Dade Behring acquisition on Siemens EPS is expected to be accretive from fiscal year 2010."

"The planned acquisition of Dade Behring complements our current capabilities and offers us the unique opportunity to create an unparalleled portfolio of products and services, and become world market leader in comprehensive clinical laboratory diagnostics," said Erich Reinhardt, president of SMS.

"Combined, Dade Behring and Siemens will have the potential to become uniquely positioned as the largest provider of clinical diagnostic products and services in the world," said Jim Reid-Anderson, president/CEO and chairman of Dade. "We will continue to serve our clinical laboratory customers with the same care and commitment that we always have, by providing innovative products and outstanding service that meets their needs. Dade Behring's customer excellence business strategy has been the foundation of our success, and as part of Siemens Medical Solutions Diagnostics, the combined businesses will continue to follow that same strategy into the future."

More deals in diagnostics

Elsewhere in the diagnostics sector, Qiagen (Venlo, the Netherlands) last month closed on its acquisition of Digene (Gaithersburg, Maryland) for $1.6 billion, that deal first unveiled in May. Digene will become a wholly owned subsdidiary of Qiagen's affiliate, Qiagen North American Holdings.

And Inverness Medical Innovations (IMI; Waltham, Massachusetts) late in August continued its acquisitive ways as well, unveiling an agreement to acquire HemoSense (San Jose, California) in an all-stock deal for $165 million.

In May, IMI beat out rival Beckman Coulter (Fullerton, California) for the right to acquire Biosite (San Diego) for $92.50 a share. And in June it unveiled plans to acquire Cholestech (Hayward, California) for $326.3 million, reporting expiration of the U.S. antitrust waiting period in late July. The diagnostics unit also recently acquired 454 Life Sciences (Branford, Connecticut), part of Curagen (New Haven, Connecticut), for $155 million.

IMI said each holder of a share of HemoSense common stock will receive 0.274192 shares of IMI common stock, representing a 37.5% premium, based on the average trading prices of both companies over the last five trading days. The deal is subject to HemoSense shareholder approval as well as the satisfaction of regulatory and other customary conditions, and is currently expected to close in the fourth quarter.

Hemosense develops handheld blood coagulation monitoring systems for monitoring patients taking warfarin.

$3.9 million deal in orthopedics

Outside the diagnostics sector, the biggest deal came in orthopedics, with Medtronic (Minneapolis) disclosing its plan to acquire Kyphon (Sunnyvale), the developer of the kyphoplasty balloon-based alternative to the vertebroplasty procedure, for about $3.9 billion. Medtronic will acquire all outstanding shares of Kyphon for $71 per share in cash, a 32% premium over an earlier Kyphon closing stock price of $53.68 and a 35% premium over Kyphon's 30-day average trading price of $52.76 per share.

This price excludes $320 million in payments associated with Kyphon's acquisitions of St. Francis Medical Technologies (Alameda, California) and Disc-O-Tech Medical Technologies (Herzliya, Israel). Medtronic said that Kyphon would have to pay a $95 million breakup fee if it decided to pursue another offer. The deal is expected to close in the first quarter next year.

"We expect our combination with Kyphon to help accelerate the growth of Medtronic's existing spinal business by extending our product offerings into some of the fastest growing product segments and enabling us to provide physicians with a broader range of therapies for use at all stages of the care continuum," said Art Collins, CEO and chairman of Medtronic, during a conference call. "Importantly, the combination will also enable more patients of all ages to receive the benefits of modern, minimally invasive spinal treatments earlier in their care, with lifestyle friendly options that are simpler, faster and less invasive than many traditional surgical treatments."

Collins indicated that the company is not done shopping, possibly adding two to three "additional growth platforms" over the next three to five years.

Medtronic said the two companies' product lines and geographic presence are "highly complementary." While both have expertise in minimally invasive treatments, Medtronic's spinal surgery focus has been on providing treatment options for younger patients who are suffering from scoliosis and degenerative disc disease in the cervical and lumbar spine.

"I believe this transaction will go a long way in enabling more patients to receive the benefits of modern minimally invasive spinal treatment," said William Hawkins III, Medtronic's president/COO, who will be the company's new president/CEO.

"The purchase of Kyphon gives Medtronic opportunity to intervene earlier in the continuum of care with simpler and less invasive surgical procedures and creates a new business opportunity as it will give surgeons the tools to more effectively treat patients who may not be candidates for traditional fusion procedures," Hawkins said during the conference call.

Medtronic said the overall deal value includes $700 million it will spend to buy shares under stock options that have vested. It will also assume $350 million in debt.

Analysts were bullish about the deal. Larry Biegelsen, medical device analyst at Wachovia, wrote that the deal could boost Medtronic's spine business to $3.3 billion, from $2.8 billion, increasing the medical device giant's share of the spine surgery business to 48% from 40%.

He also noted that there are 150 different companies in the spine space, and that giants Medtronic and Johnson & Johnson (New Brunswick, New Jersey) have been losing market share to smaller players. Hence, mergers are "inevitable," and the deal could be the "first significant move" toward a sustained wave of consolidations.

Rick Wise of Bear Stearns wrote in a research note that he expects the merger to drive accelerated top-line growth for Medtronic. In his current model, Wise said spine sales represent about 21% of projected FY08 Medtronic sales. "Following the acquisition, spine would approximate roughly 25% of the total company. More important, Kyphon would drive accelerated top-line growth for Medtronic — potentially layering on an additional 3% to annual sales growth."

As part of the agreement, Medtronic halted legal proceedings in a lawsuit the company had filed against Kyphon in April 2006 over four patents related to catheters and spinal treatments.

Kyphon's most recent financial numbers appear to support Medtronic's premium price for the company. Its 2Q profit rose 16% to $11 million, or 23 cents a share, compared with profit of $9.5 million, or 21 cents a share, during the same period a year prior. Revenue rose 43% to $144.3 million from $101.1 million.

AMO drops out of B&L competition

The deal landscape also got a bit less crowded during August with Advanced Medical Optics (AMO; Santa Ana, California) deciding to pull out of the competition to acquire rival Bausch & Lomb (B&L; Rochester, New York), withdrawing its $4.2 billion bid. The move clears the way for B&L, a 154-year-old maker of contact lenses, ophthalmic drugs and vision-correction surgical instruments, to be acquired by private equity firm Warburg Pincus (New York) for $3.67 billion.

In a letter to B&L's board members, James Mazzo, CEO of AMO, said he had concluded they were "intent on delivering Bausch & Lomb to Warburg Pincus at $65 per share." Mazzo called that deal "inferior to AMO's proposal both in terms of value and the ability for the Bausch & Lomb shareholders to participate in the significant synergies that combining AMO and B&L would create.

"Accordingly, we have withdrawn our offer," Mazzo wrote in a regulatory filing. "If, in the future, you decide to run a process that is designed to deliver value to your shareholders, please let us know."

Warburg Pincus, a buyout and venture capital firm in New York, agreed with B&L's board in mid-May on a $65-a-share all-cash takeover deal.

"It will be interesting to see how Bausch's shareholders react to the news. Given the demands of the Bausch board, this news does not come as a surprise to us," Biegelsen wrote in a research note on the event.

"Had [AMO] acquired Bausch, we would have been concerned about [AMO's] ability to successfully integrate the two companies while also addressing major challenges within the current [AMO] business, such as the withdrawal of Complete Moisture Plus contact lens solution and the integration of IntraLase."