Teleflex (Limerick, Pennsylvania) continued its recent expansion into the realm of medical technologies Monday with the $2 billion acquisition of Arrow International (Reading, Pennsylvania), a manufacturer of disposable catheters and related products for critical and cardiac care, recently troubled by profit shortfalls.

The merger agreement, unanimously approved by the boards of both companies, would provide a cash payment of $45.50 a share for each outstanding share of Arrow, a premium of 20% over Arrow’s closing share price on July 20, 2007.

The agreement was an all-cash transaction valued at $2 billion.

“Arrow International has been on the Teleflex radar for a number of years now,” said Ernest Waaser, president of Teleflex Medical , a division of Teleflex, during an audio conference yesterday morning.

“The message here is that while sharing similar customer distribution channels and manufacturing processes, we have very little overlap in terms of specialty areas where we focus. We can leverage each other’s infrastructure for cross selling and manufacturing purposes.”

Waaser said that one reason for the acquisition was because of Arrow’s success with critical care disposables, a line of products producing strong revenue.

Waaser pointed out that Arrow was very strong in specialty catheters and products for anesthesia.

Teleflex specializes in neurology, respiratory surgery and other types of neurological products.

“With the execution of this merger agreement, Teleflex is redefining its portfolio and its Medical Segment by creating a $1.4 billion medical technology business that will be the largest source of the company’s revenues and profitability,” said Jeffrey Black, CEO and chairman of Teleflex. “With the addition of Arrow, we expect that by fiscal 2008 the Medical Segment should achieve annual revenues of approximately $1.5 billion and generate operating margins in the 20% range.”

Teleflex says that the merger with Arrow will enable the company to:

• create a medical technology company with a leading global position as a provider of disposable medical products used in critical care and surgical applications;

• accelerate global expansion and new channels for each company’s well-known brands, in particular enhancing opportunities for growth in Asia and Eastern Europe, utilizing Arrow’s established sales network;

• provide customers with a broader range of medical disposables, with medical disposables and single-use devices serving as a source of recurring sales representing in excess of 80% of total Teleflex revenue;

• focus investment in innovative technologies that provide less invasive access during diagnostic and therapeutic procedures;

• and enhance the company’s ability to improve overall operating margins, reduce cyclicality and expand its medical portfolio through expanded offerings, new product development and provide economies of scale.

The company predicted that synergies from the transaction could reach $70 million-$75 million by FY10 through reduction of administrative and global infrastructure expenses, increased efficiencies and added revenue. Revenue synergies are expected from expanded channels, growth in Asia and Eastern Europe, faster introduction of new products and new cross-selling opportunities.

The merged company will have 11,000 employees worldwide.

Teleflex said it has secured the necessary financing for the transaction.

Bank of America Securities is acting as financial advisor and Simpson, Thacher & Bartlett is acting as legal counsel to Teleflex, and Bank of America and its affiliates and J.P. Morgan Securities have provided financing commitments. Lazard is providing financial advisory services and Dechert is acting as legal counsel to Arrow.

Circumstances earlier this year affecting both Pennsylvania-based-companies, set the tone for the merger.

In June Arrow essentially put up the “for sale” sign by dismissing its CEO Carl Anderson Jr. and reporting the formation of a committee to “explore alternatives.”

The company said that it had “lost confidence” in Anderson’s leadership after four years at the helm and that during that time it had “failed to meet ... sales and earnings targets” set by him. That announcement also was accompanied by a report that it was facing a potential takeover by the McNeil Trust which was offering an alternate slate of directors.

Arrow, at the time, reported that it expected FY07 sales and EPS to come in near the low end of targets provided in its 2Q press release of March 27. At that time, Arrow expected earnings of $1.40-$1.48 a share on revenue of $515 million-$525 million.

Earlier in the year Teleflex made deal-making news by acquiring the assets of HDJ (HDJ; Lancaster, Pennsylvania) and its subsidiary Specialized Medical Devices , a provider of engineering and manufacturing services to medical device manufactures (MDD, April 13, 2007).

Teleflex said the purchase of HDJ added another line of medical components, devices, implants and instruments used in orthopedic procedures to the Teleflex portfolio. Terms of that deal were not disclosed, but revenue from the HDJ product lines was reportedly about $14 million in 2006.

Teleflex is a supplier of disposable medical products, surgical instruments and medical devices in three main areas: respiratory care; urology instruments; and specialty sutures used in surgery. It markets its products under the HudsonRCI and R sch brand names, and surgical instruments and medical devices under the Beere, Deknatel, KMedic, Pilling, Taut and Weck brands.

In other dealmaking news: Misys Healthcare , (Raleigh North Carolina) a division of Misys plc (London) reported two divestitures.

The first is an agreement to divest the company’s computerized patient record (CPR) assets to QuadraMed (Reston, Virginia) for $33 million in cash.

This transaction is expected to close within 60 days.

The components of the QuadraMed Care-Based Revenue Cycle include solutions for access and identity management, care management, health information and revenue cycle management that combine with CPR to create a product line for improving patient care quality and safety.

Misys also signed an agreement to transfer the ownership of its Diagnostic Systems business to Vista Equity Partners (San Francisco), focused on investing in software and technology. The sale includes all business assets, technology and products associated with the current hospital systems diagnostic portfolio, including the Misys Laboratory, Commercial Laboratory, and Clinical Financial products, and stand-alone systems for radiology and pharmacy departments. Terms of this deal were not disclosed.

Vista said the acquisition gives it “another strong presence in the acute care market.”

Misys Healthcare said that divestiture of the Diagnostic Systems business — including the Misys Laboratory product — marks “a new strategic direction and market focus. “

QuadraMed is a provider of IT solutions for healthcare companies.