Hologic (HOLX) has decided to retire $500 million of its 2% convertible senior notes (due 2037) in exchange of $500 million of 2% convertible senior notes due 2042. Subsequent to this arrangement, $775 million in aggregate principal amount of the original notes will remain outstanding.
The new notes have been issued at a conversion rate of 32.07698 shares per $1,000 of principal amount (conversion price of approximately $31.175 per share), which represents a 45% premium over the closing price of Hologic’s share on February 28, 2012.
Hologic exited the most recent quarter with cash and cash equivalents of $793.6 million, up 11% on a sequential basis, primarily driven by strong cash flow from operations. A strong cash balance enables Hologic to look for suitable acquisitions to drive growth besides investing in current technologies and operations.
Major acquisitions in 2011 that are now playing a significant role in the company’s performance include Interlace Medical, Healthcome Technology and TCT Medical. This troika of acquisitions is expected to account for approximately 2% of the total top-line growth in fiscal 2012.
The Bedford based company in its effort to reduce leverage is preparing for the possible redemption of the first tranche of its $1.275 billion convertible notes (expected to be redeemed in December 2013). With free cash flow of $97 million in the latest quarter ($112 million of cash flow from operations less $15 million of capital expenditure), static on a sequential basis, the company reiterated its free cash flow guidance of $400-$425 million for fiscal 2012.
Hologic has become an industry giant in the field of women’s health products with a wide portfolio. Besides, the Dimensions 3D system is a major technological breakthrough for the company and should help generate higher revenues. The company is confident of recording double-digit compounded growth by 2015 on the back of a strong product portfolio, international expansion and opportunistic tuck-in acquisitions. The stock retains a Zacks #2 Rank (Buy) in the short term.
However, the current economic uncertainty is taking a toll on Hologic. High unemployment is forcing many to defer their physician visits, thereby impacting volumes for NovaSure and Adiana products. A similar scenario has affected other players in the industry, such as Conceptus (CPTS) and Cepheid (CPHD), among others. Over the long term, we are Neutral on Hologic.
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