BB&T Associate

Last year, the big merger and acquisitions battle was for Guidant (Indianapolis). Johnson & Johnson (New Brunswick, New Jersey) was the initial suitor with a first bid of $22 billion, that offer eventually topped by Boston Scientific (Natick, Massachusetts) with its bid of $27 billion (and Boston Sci shareholders probably wondering if that amount was a bit — or a whole lot — too much).

This year a similar battle, mirroring the effort to acquire Guidant, has been waged over possession of Australian imaging firm Vision Systems (Melbourne), manufacturer of instruments and reagents to detect cancer -- though the stakes are hardly as high, being only in the multi-million-dollar range. And with three players seeking Vision Systems, the bidding made the competition look more like a game of poker than an auction, with Danaher (Washington) eventually walking away with all the chips.

The bidding for Vision Systems was opened by Ventana Medical Systems (Tucson, Arizona) which in August offered to acquire all shares of Vision and retire its convertible debt for $346 million in cash ($2.13 a share).

A month later, Cytyc (Marlborough, Massachusetts) entered the fray, offering to pay $374 million (A$2.35 a share) for the company, adding that aside from the premium price its tender process would allow Visions’s shareholders to cash out more quickly. It also noted that unlike the Ventana offer, it had attached limited conditions to its offer and in particular had no minimum acceptance condition.

Ventana shortly after made a surprise move, acquiring 22,166,603 shares in Vision for A$63.17 million (A$2.85 a share). The stake amounted to 12% of Vision’s outstanding shares, the share acquisition made in an effort to block competitors from acquiring full ownership of the company. Cytyc then sweetened its offer to A$3.25 per outstanding share, a 53% premium to Ventana’s offer.

While these suitors continued to squabble about which of them provided the best fit and which could close the deal at the earliest and provide the best price, Danaher suddenly came to the table and forced them out of the game with a higher offer of $520 million. Cytyc said that it would not raise its A$3.25 per share bid ($517 million total), and Ventana said it would no longer pursue the acquisition of Vision.

James Fox, managing director of Vision Systems, said that “Vision’s shareholders clearly benefit from this transaction, and we also recognize that Danaher and Leica Microsystems” — its pathology and diagnostic unit — “provide a unique set of opportunities for our businesses to thrive and continue to grow.” Danaher’s bid, approved by Vision Systems in the absence of a higher offer, is conditional on gaining 50.1% acceptance and is expected to close in 4Q06.

Vision’s BioSystems arm sells automated machines to pathology labs and hospitals and intended to improve the speed and accuracy of cancer diagnosis. The company locks in customers to high-margin three- to five-year packages for the reagents used with the machines.

Danaher said that Vision complements its Leica Microsystems pathology diagnostics business that supplies laboratories with equipment such as high-end microscopes.

It said the combination with Vision will create “a leading global supplier of innovative solutions serving the anatomical pathology market. Together Vision and Leica Microsystems would offer a complete line of specimen preparation and diagnostic instruments while offering the advanced chemistries critical to the future of pathology.”

“Vision has an attractive pathology diagnostics instrument and consumable product offering that fits very well with the growth strategy we are pursuing for our Medical Technology Platform,” said H. Lawrence Culp Jr., president/CEO of Danaher.

Prior to Danaher’s offer, however, Cytyc had raised the specter of antitrust concerns in both Australia and the U.S. regarding the Ventana combination with Vision.

“The combination of Vision Systems and Ventana would be a combination of the No. 1 and No. 2 players in the market,” said Patrick Sullivan, Cytyc president/CEO and chairman “It will result in a combined market share of around 85%, blocking healthy competition, which is in the best interest of customers.”

While Cytyc has appeared to fold its cards and leave the game, it said in a statement that its bid remains open, calling its offer the only one “currently open for shareholders to accept and is not subject to any conditions, unlike the offer by Danaher, which Cytyc understands will not be available for shareholders to accept until early November.”

Christopher Gleeson, president/CEO of Ventana, expressed disappointment at losing the deal. “We indicated from the outset that the acquisition of Vision would have accelerated the realization of our strategy in certain areas,” said Gleeson. “As such we are disappointed to miss this particular opportunity; however, we will continue to focus on executing against our existing growth plans ... .”

Both Cytyc and Ventana still each own more than 10% of Vision Systems shares, enough to block Danaher from taking full ownership.

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