Medical technologies and surgical devices company Conmed Corporation (CNMD) recently announced a definitive agreement for the acquisition of Massachusetts-based healthcare company Viking Systems, Inc. (VKNG) for 27 cents per share or $22.5 million, in cash. The deal has been approved by the board of directors of both companies and is expected to close in the fourth quarter of 2012.
Financial Impact of Acquisition
Initially, the acquisition of Viking is expected to have a neutral impact on adjusted earnings. However, Conmed will incur consolidation-related transitional charges due to relocation of its research and marketing team from California to Massachusetts.
Per the terms of the agreement, Conmed plans to purchase Viking’s outstanding shares for 27 cents per share by initiating a tender offer by one of its wholly-owned subsidiaries. After the completion of the tender offer, Conmed will buy the remaining shares through a second-step merger at the same price of 27 cents. The offer price of 27 cents per share represents a 42% premium over Viking’s closing stock price of 19 cents per share on August 13.
Additionally, some Viking shareholders have entered into a Tender and Voting Agreement. Per the agreement, these shareholders have agreed to tender all shares of Viking’s common stock beneficially owned by them. This represents roughly 43% of Viking’s issued and outstanding shares, as of August 13.
The tender offer is subject to various terms and conditions (except financing condition) and is expected to commence by August 27, 2012.
Acquisition to Boost Surgical Video Products Portfolio
Conmed plans to integrate its 2D surgical video research and marketing team located at Santa Barbara, California with the Viking group in Massachusetts to build on its surgical video product portfolio. Viking Systems’ key product is the 3D-HD Vision System, which is a cutting-edge device used during minimally invasive laparoscopic surgery. It is mainly used for gynecologic, urologic, bariatric, neurologic, cardiac and general surgery.
The passive glasses and flat screen monitor enabled 3D-HD Vision System is the only 3D imaging system that has been approved by the U.S. Food, Drug and Administration (:FDA) and has also received the European CE Mark. It is also the only 3D-HD System which is available as a single unit, unlike other 3D-HD visualization systems which are available in the market as a part of expensive robotic systems. Apart from the three dimensional vision system, Viking also produces 2D digital cameras which are sold to third party companies.
Conmed is a medical products maker, specializing in surgical instruments and devices. A large percentage of the company’s products are designed for minimally invasive surgery, a trend that is extremely popular these days. Thus, we believe the inclusion of Viking’s innovative technology with Conmed’s offerings will further enhance the company’s product portfolio, which in turn will benefit patient outcome.
However, Conmed operates in a highly-competitive orthopedic surgery market against much larger, more technically-competent companies such as Covidien plc (COV), Smith & Nephew (SNN) and Stryker Corporation (SYK). Moreover, we remain concerned about Conmed’s soft capital product sales due to the ongoing dismal macroeconomic conditions. The company has lowered its sales guidance for 2012 in its second quarter report, following such poor results. We maintain our ‘Neutral’ recommendation on Conmed. The company carries a short-term Zacks #4 Rank (Sell).
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