GE to Buy Clarient to Expand in Cancer Diagnostics
General Electric Co., the world’s biggest maker of medical-imaging equipment, agreed to buy cancer diagnostics company Clarient Inc. in a deal valued at about $580 million, speeding its expansion into tailored tests.
A tender offer will begin at $5 for each common share and $20 for each preferred share of Aliso Viejo, California-based Clarient, the companies said in a statement today. That’s a premium of 34 percent for common shares, compared with yesterday’s closing price.
Chief Executive Officer Jeffrey Immelt has been building out GE’s health-care business, in part to make cancer diagnosis more precise, boosting research and expanding cancer ventures like one with Eli Lilly & Co. Clarient’s tests help determine which blood cells are affected in the cases of blood cancer, and whether certain gene variants are present in other cancers, making it easier to tailor treatment precisely.
“We’re going into the next realm of diagnostic technology,” John Dineen, who runs GE Healthcare, said in an interview. “This is something that’s happened in a very big way at the pharma companies. We’re moving in the same direction.”
GE, based in Fairfield, Connecticut, fell 5 cents to $16.06 at 4:15 p.m. in New York Stock Exchange composite trading. Clarient rose $1.24, or 33 percent, to $4.98 in Nasdaq Stock Market trading.
Premium Comparison
The purchase may boost profit within two years as GE adds products, research and marketing resources, Dineen said. GE Healthcare posted its third straight profit increase in the three months ended in September and that performance is expected to continue into 2011, he said. The division provided $16 billion of the parent company’s $157 billion in sales last year.
Over the past decade, the average premium for acquisitions in the biotechnology, diagnostic imaging and diagnostic kit industries was 35 percent, compared with the average closing price of the target for 20 days before the deal announcement, according to data compiled by Bloomberg. The data spans more than 2,000 transactions, including about 1,200 in which financial terms were made public.
GE is paying a premium of 43 percent for Clarient based on the 20-day price, higher than the 21 percent average premium it paid since 1986 for acquisitions across all its businesses, including energy, aviation, media and appliances, according to Bloomberg data.
Rich Deal
Some investors may consider today’s deal too expensive in the broader GE context, said Joel Levington, who follows the company as a managing director of corporate credit at Brookfield Investment Management Inc. in New York.
“We view the deal as quite rich and probably one, despite its small size, that will put into question GE’s capital- allocation decision process,” Levington said.
The transaction values Clarient at $580 million, net of cash and investments as of June 30, according to the statement. That includes common stock with dilution from potential conversion of options, preferred stock and restricted stock, GE said.
About 47 percent of Clarient stockholders have agreed to the sale, GE said. Safeguard Scientifics Inc., which owns 26 percent of Clarient’s shares, said in a statement it expects proceeds of $145 million from the transaction. Clarient would pay GE an $18 million breakup fee under certain circumstances, including if its board withdraws or changes a recommendation to support the offer, Clarient said in a regulatory filing.
Cancer Treatments
Global demand for cancer-profiling products and services is estimated to grow to $47 billion by 2015 from $15 billion in 2009, according to the statement.
Knowing what markers are on certain blood cells lets doctors know how to treat cancer patients. One type, acute myelogenous leukemia, is often treated through chemotherapy and a bone marrow transplant; another type, chronic myelogenous leukemia, is treated with Novartis AG’s Gleevec.
Clarient also has a test for a gene variation called EGFR, which is targeted by Roche Holding AG’s Tarceva.
GE Healthcare will continue to invest in molecular diagnostics, including via acquisitions of about the same size, Dineen said.
In May, GE invested $5 million in CardioDx, a maker of non- invasive genomic cardiac tests, and in 2008, the division formed a partnership with the University of Pittsburgh Medical Center called Omnyx LLC to put pathologist slides into digital form.
Last year, Immelt began an initiative called Healthymagination that targets $6 billion in spending by 2015 on products, financing and partnerships.
Health-Care Expansion
Immelt is paring the GE Capital finance unit and expanding other businesses as he invests some of the $20 billion in discretionary cash the company expects by year-end following recent acquisitions, including the $3 billion acquisition of oil-field equipment maker Dresser Inc. on Oct. 6. GE raised its dividend and resumed share buybacks in July.
GE is targeting health care and energy as two areas to expand, Immelt has said. GE is also the world’s biggest maker of power generation equipment, locomotives and jet engines.
To contact the reporter on this story: Rachel Layne at rlayne@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net
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