The thinking behind Beckman Coulter Inc.’s premium-rich $1.55 billion offer for San Diego medical diagnostic company Biosite Inc. now seems a little clearer.
At the time of the offer two weeks ago, Wall Street balked at the valuation of Biosite at 53% more than what it was trading at before.
When analysts pressed Beckman Chief Executive Scott Garrett on whether it was a case of the company trying to outbid other potential suitors, he simply said, “Yes, it was.”
Turns out Garrett wasn’t just being paranoid.
Last week, Inverness Medical Innovations Inc. of Waltham, Mass., made an even higher bid for Biosite, offering 62% more than what the company was worth before Beckman’s offer.
Inverness, best known for home pregnancy tests and vitamins, already owns 5% of Biosite.
Biosite’s “valuable tests and an exciting pipeline” make the company worth a hefty premium for Beckman, said Paul Glyer, senior vice president of strategy, business development and investor relations and a key figure in the deal.
Even so, Beckman didn’t indicate last week that it plans to up its offer. Garrett appealed to Biosite shareholders with the prospect of a quick close in 30 days and called the Inverness offer “unsolicited” and “highly speculative.”
Financing
Beckman recently said it plans to issue debt, including some that converts to stock, to finance the buy.
As of late last week, Biosite only had received an offer letter but not actual terms of a deal from Inverness.
Inverness said it has “nesessary financing commitments.”
The company would be buying Biosite for well more than half its own market value of about $2 billion, versus 38% for Beckman.
“Beckman Coulter is proceeding, as planned, with a fully financed, cash offer for Biosite,” Garrett said.
The company also contends Biosite is a good fit.
Beckman makes machines and chemicals for laboratories running tests for doctors as well as for medical and drug researchers. It had sales of $2.5 billion last year and a recent market value of $3.9 billion.
The company is seeking new tests to detect heart disease, blood poisoning, acute kidney injury and abdominal pain,driving factors for the Biosite offer, according to Glyer.
Biosite has yearly sales of $300 million, 80% of which come from tests for heart disease.
Inverness, which has annual sales of $600 million, makes a range of diagnostic products, including tests for mononucleosis, pregnancy and sexually transmitted diseases.
The company makes home pregnancy tests and fertility monitors sold under brands Clearblue Easy, Fact Plus and Accu-Clear. It also makes StressTabs and Posture-D vitamins.
Investors aren’t so sure about the deal for Beckman. They drove the company’s shares down about 7% when it was announced and 3% on word of the Inverness offer.
William Quirk, who follows Beckman Coulter for US Bancorp Piper Jaffray in Minneapolis, downgraded the company on its offer. The price is high and revenue from Biosite’s biggest product, the B-type natriuretic peptide test for heart failure, is expected to grow at levels below its rivals, he said.
After the offer, Garrett and Charles Slacik, Beckman Coulter’s chief financial officer, traveled to New York, Boston, Chicago, Minneapolis, Kansas City, San Francisco, Los Angeles and even Santa Barbara to meet with investors, Glyer said.
“When you do a big transaction like this, you try to reach out to as many investors as you can,” he said.
The buy would be its largest since 1997, when predecessor Beckman Instruments Inc. bought Miami’s Coulter Corp. for $1.1 billion, creating today’s Beckman Coulter.
Gaining size and scale,the goal with Coulter,isn’t why Beckman wants Biosite, said Glyer, who was involved with the Coulter deal.
“It’s completely different,” he said. “It’s about gaining access to valuable tests.”
Beckman has some big rivals, some of which are changing hands or have been bought. The diagnostic arm of Abbott Laboratories Inc. is being bought by General Electric Co. in a deal set to close later this year. Germany’s Siemens AG recently wrapped up its buy of Bayer AG’s diagnostic arm.
Other rivals include Switzerland’s Roche AG and Dade Behring of Miami.
With Biosite, Beckman stands to become the largest domestic immunoassay,or biochemical testing,company, Garrett said.
Biosite and Beckman have worked together since 2003 in the area of B-type natriuretic peptide. There’s another connection,Garrett and Kim Blickenstaff, Biosite’s chief executive and cofounder, are former Baxter International Inc. executives.
Positive Response
Some analysts like the proposal.
“We believe the acquisition of Biosite further solidifies Beckman’s high-growth immunoassay franchise with additional assays for menu expansion as well as gaining additional exposure into the (point of care) market, especially the hospital ER,” wrote Jeffrey Frelick, a diagnostic device and laboratory equipment analyst with Lazard Capital Markets in New York.
Biosite stands to add to Beckman’s earnings, even though the offer’s multiple, at five times Biosite’s 2006 revenue, “is at the higher end of the range we have seen for other diagnostic company acquisitions,” wrote Quintin Lai, Jason Weiss and Matthew Notarianni, analysts with R.W. Baird & Co., a Milwaukee-based investment bank.
For its part, Beckman believes Biosite’s potential “is just as attractive outside the U.S. as within the U.S.,” Garrett said.
With a rival bidder in the picture, Beckman hasn’t set firm plans yet for integrating Biosite.
“We don’t own Biosite yet, we can’t operate it and we aren’t pretending to operate it,” Glyer said.
Beckman officials have been to Biosite’s headquarters in Sorrento Valley, a San Diego suburb, to answer questions about what the deal will mean to workers.
Biosite employs 1,100 workers in all. If the deal closes, duplicated public company functions won’t be needed. But Beckman doesn’t want to buy the company to lay off people, Glyer said. Biosite’s workers have been key in the company’s development and growth, he said.
