Varian Medical Systems (VAR) recently agreed with Bank of America N.A., a wing of Bank of America (BAC), to repurchase shares worth $225 million under an expedited program. Simultaneously, Varian re-set its revolving credit facility with the bank and hiked its borrowing limit from $150 million to $225 million.
 
Varian will initially receive about 3.8 million shares from Bank of America by paying $225 million, based on the closing price as of August 24, 2010. The total number of shares to be repurchased, in the end, will be decided upon settlement. The repurchase will be financed with both cash and borrowings. The company expects its repurchase will be accretive, but with minor impact in fiscal 2010.
 
The shares slated to be repurchased constitute the balance of the 5 million authorization from November 2009, as well as the more recent 8 million authorized in August 2010. At the closure of the current accelerated program, about 5 million shares will be outstanding under the authorization in 2010.
 
As of June 30, 2010, Varian had 124.5 million outstanding shares. Since its inception (in fiscal 2001) Varian spent $1.8 billion to repurchase 43 million shares.
 
Varian’s repurchase program leverages its financial performance. It continues to be technology-driven with new Oncology products fueling growth. Its TrueBeam system, used in image-guided radiotherapy, was a key contributor in third-quarter fiscal 2010 with the company receiving orders for 60 systems since its introduction in April 2010.
 
Another positive trend deciphered was roughly 33% of Oncology revenues derived in the third-quarter from recurring services.  It is expected to grow as the company expands its installed base overseas, particularly in China and India. 
 
On a slightly somber note, the company-wide sales growth of 13% in the quarter was masked by a 3% sales contraction in the North American markets. While sales in Europe grew 22%, the future growth trajectory may be impeded by the debt crisis in the European Union.
 
Also on the negative list is the delayed recovery of cyclical hospital capital expenditure in the US . Varian is also unable to gauge the impact of the recently enacted heath care reform. Yet, the company lately observed that its domestic business is accruing from a large number of small orders, thereby indicating a recovery in broad-based spending activity.
 
Finally, Varian must compete for opportunity that is deemed by many market observers as relatively small. Its competitors include much larger medical product companies such as Siemens (SI) and Philips (PHG) with deep pockets for research and global reach.
 
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