Recently Covidien (COV) announced its intention to acquire Somanetics Corporation (SMTS) for $25.00 per share or a total of $250 million, net of cash acquired. The acquisition will enable Covidien to further diversify its portfolio.
Although the transaction will lower the company’s 2010 and 2011 earnings on an adjusted basis, the deal is expected to be neutral to 2010 earnings and slightly add to 2011 earnings. Somanetics, a leader in cerebral and somatic oximetry, recorded $50 million in sales in 2009. The company’s INVOS(R) (In-Vivo Optical Spectroscopy) Cerebral/Somatic Oximeter is a noninvasive patient monitor which continuously measures blood oxygen levels in the brain and in the body of patients who are at risk of restricted blood flow.
Covidien has entered various arrangements in the recent past, the latest being the decision to acquire ev3 Inc. (EVVV), a maker of vascular devices for $2.6 billion in June 2010. ev3 specializes in instruments used in endovascular surgeries, including stents and balloon catheters, which are used to unclog arteries blocked by fatty plaque.
The ev3 deal, expected to close in July, will strengthen Covidien’s business in stents and other vascular devices. However, fiscal 2010 and fiscal 2011 earnings will be negatively affected by 5 to 8 cents per share and 10 to 15 cents per share, respectively.
In May 2010, Covidien decided to sell its specialty chemicals business to a unit of New Mountain Capital, L.L.C. for $280 million in cash. Sale of the specialty chemicals business is likely to reduce fiscal 2010 and fiscal 2011 earnings by 9 to 11 cents per share, respectively. This will enable the company to streamline its portfolio and reallocate resources to its faster-growing, higher-margin businesses.
We expect Covidien to continue to record a positive revenue growth across its major operating segments, driven by the growing healthcare business and the company’s increased focus on its core businesses. In the long term, a combination of divestitures, investments and acquisitions is expected to drive the company’s growth rate higher.
Read the full analyst report on “COV”
Read the full analyst report on “SMTS”
Read the full analyst report on “EVVV”
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