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Analyst: Inverness Could Pull Off Biosite Buy

So far, the response of Beckman Coulter Inc. to a competing bid for a coveted takeover target has been to plant seeds of doubt about the rival offer.

It might not stick, according to one analyst.

Inverness Medical Innovations Inc. of Waltham, Mass., which recently trumped Beckman’s $1.55 billion offer for San Diego’s Biosite Inc., could get financing and pull off a deal, said Greg Simpson, a medical device analyst with St. Louis-based Stifel Nicolaus & Co.

“It depends how big this deal ultimately gets, but yeah, they’ve got a great track record,” he said of Inverness. “The fundamentals of the company are strong. I think they will have lenders lining up to lend them money.”

In late March, Fullerton-based Beckman made its $85 per share offer for Biosite. Beckman makes instruments and chemicals for labs running tests for doctors as well as for medical and drug researchers. Biosite makes tests for detecting heart diseases.

A week later, Inverness, which makes diagnostic products as well as consumer healthcare products, came in with its $90 a share offer, or about $1.6 billion.

Beckman Chief Executive Scott Garrett has called the rival offer “highly speculative.”

“The conditional and uncertain terms of the Inverness offer should give the Biosite board and its stockholders enormous pause,” Garrett said.

Beckman has stuck to its original offer, which was 50% higher than what Biosite was valued at before. The company factored in the chance of other offers with its big premium.

An offering of debt is in the works to finance the buy.

Inverness, which didn’t return a call for comment, hasn’t outlined how it would pay for Biosite other than to say it has “necessary financing commitments.”

“We’ve always been big fans of Inverness and their CEO, Ron Zwanziger, but yeah, that’s one of the unanswered questions for us,” analyst Simpson said. “It just isn’t clear to us.”

While Simpson said he thinks Inverness could pull off a buy, “You’re going to be looking at a very leveraged company on the other side of this deal,” he said.

Beckman, too, stands to take on debt. But the magnitude isn’t the same.

Inverness would be buying Biosite for some 80% of its recent market value of about $1.9 billion, versus 39% for Beckman, which had a value of $3.9 billion last week.

Inverness already owns about 5% of Biosite.

Last week, Biosite’s board agreed to talks with Inverness while stressing its deal with Beckman still is intact.

For Inverness to prevail, it will need to sell lenders on the deal, according to Simpson.

“The financing of this deal, ultimately, will be very key to how a successful acquisition of Biosite would work out for Inverness,” he said.

Inverness makes test for detecting mononucleosis, pregnancy and sexually transmitted diseases. The company might be best known for home pregnancy tests and fertility monitors sold under brands Clearblue Easy, Fact Plus and Accu-Clear. It also makes StressTabs and Posture-D vitamins.


Beckman Response

Beckman could raise its existing bid, Simpson said, “and then sell the other merits of the offer, including the rapid time to closing and the certainty of financing.”

“While the potential synergies of a Biosite acquisition seem less obvious and smaller in scale for Beckman Coulter than for (Inverness), we find it unlikely that (Beckman Coulter) will walk away from the table,” he wrote.

Beckman’s “obviously not happy with Inverness coming back in this fashion after what they thought was a done deal,” Simpson said. “It kind of upsets the apple cart at a late stage.”

But “Inverness left Biosite with little choice but to negotiate,” he said.

Inverness called Biosite’s buyout process into question and raised doubts as to whether its management was being responsible to shareholders by accepting Beckman’s offer.

“After 10 months of careful review and unsuccessful outreach efforts to Biosite’s management team and board, we came to the conclusion that we had no choice but to make our intentions absolutely clear,” Zwanziger said in a release.

The Inverness bid was surprising because “it was never 100% clear that Inverness was one of the bidders for Biosite,” Simpson said.

“Once what we thought was the final Beckman deal was announced, everybody thought that was the end of it. And ironically, the $85 offer was pretty widely panned as Beckman paying too much,” he said.

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