Shareholders Approve Hologic’s $6.2 Billion Acquisition of Cytyc

10/18/07

In a move that will create one of the largest life sciences companies in Massachusetts, shareholders of both Hologic (NASDAQ: HOLX) and Cytyc (NASDAQ: CYTC) today approved Bedford, MA-based Hologic’s $6.2 billion cash-and-stock acquisition of the Marlborough diagnostics and device maker.

The match seems a good one. When it was announced in May, analysts were raving, dubbing the new company “a premier women’s health franchise” and even “a women’s health empire,” according to the Wall Street Journal‘s Health Blog. Hologic specializes in imaging equipment, particularly for mammography. Cytyc, meanwhile, is best known for its cervical cancer screening tests and a device for treating excessive menstrual bleeding.

Both companies have been on a growth track. Last quarter Cytyc’s revenues were up 26 percent (at $188.8 million) compared to the same period last year, while Hologic saw a 60 percent increase in revenues (to $191.5 million). Combined, the two companies will have a market cap of approximately $10 billion and anticipated revenues of $1.7 billion in the first post-merger year. The new company, which will retain the Hologic name and its headquarters in Bedford, will have more than 3,300 employees and operations in 20 countries.

Despite the analyst raves, the market had a mixed reaction when the deal was first announced, with Hologic stock tumbling about 10 percent and Cytyc moving up about 20 percent. But over the last few months each company’s stock has crept steadily up, with Cytyc’s rising proportionally much higher. Some pundits predicted there would be other suitors for Cytyc, but none emerged.

While the two companies expect to save about $30 million in costs by merging, Hologic CEO Jack W. Cummings, who will retain his title, has repeatedly said that the deal is about growth, not cost savings. (According to company press releases, there are no plans for layoffs in association with the deal.) That growth is supposed to come mainly from having a combined sales and service force of approximately 1,200 people; cross-selling opportunities (which the companies expect to “enhance revenue growth by more than $75 million within the first three years after the merger closes”); and increased international sales, according to a release.

So, what’s there not to like about this deal? Well, there’s always a gadfly or two floating around. For example, in that earlier-mentioned post, Wall Street Journal blogger Jacob Goldstein also noted that “The tie-up of a manufacturer of capital equipment and a maker of high-end lab tests (none of which run on Hologic’s machines) would be unusual.” Even more skeptical, not surprisingly, was George Gutowski, whose own blog is called The Financial Skeptic. In a post at Seeking Alpha made right after the deal was announced, Gutowski pointed out how little discussion there has been about growth from new products. “Hologic sees the play as a market dominance move,” he wrote. “Not one word about the strength of R&D and what the future holds. Today’s drum beats too loudly and drowns out anything about tomorrow.”

Shares of each firm held pretty steady today, with Hologic down $0.17 to $67.73 and Cytyc off $0.21 at $51.46.

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