Hologic Agrees to Acquire Gen-Probe for $3.7 Billion

Hologic Inc. (HOLX), a maker of diagnostic, medical and surgical devices, said the $3.7 billion acquisition of Gen-Probe Inc. (GPRO) will bring “double-digit” returns as the company sells new products to overseas markets.

“We’re very confident that this investment will yield a low double-digit return, and that’s significantly greater than our cost of capital,” Hologic Chief Executive Officer Rob Cascella said in an interview.

The deal will bring Gen-Probe’s testing products for blood screening and sexually transmitted diseases to markets in China and Europe where the company currently has little reach, Cascella said. “We look at it as taking world-beating product and putting it through an engine for growth,” Cascella said.

Gen-Probe investors will receive $82.75 a share in the acquisition, the two companies said today in a statement. That’s about 20 percent above San Diego-based Gen-Probe’s closing price on April 27. The deal’s $3.7 billion value includes net debt.

Gen-Probe dominates testing for sexually transmitted diseases with about a 60 percent share of the U.S. market, including tests for chlamydia and gonorrhea, and human papillomavirus, Bloomberg reported last year. It also does about 80 percent of blood-bank screenings in the U.S.

Junaid Husain, an analyst with Dougherty & Co. in Minneapolis, said he was “very, very cautious” about the deal.

“The Gen-Probe business is very mature,” he said in a telephone interview. “They have infectious-disease products and blood-system products at the top end of the product life cycle, so I am just not sure where they are going to get the accelerated growth.”

Shares Fall

Hologic, based in Bedford, Massachusetts, fell 10 percent to $19.12 at the close in New York, its biggest one-day decline since May 2010. Gen-Probe gained 19 percent to $81.55.

The deal will add about 20 cents a share to profit in the first year after closing, Hologic said in the statement. “This transaction establishes Hologic as a premier company in STD diagnostics,” Cascella said in the statement.

The agreement would be the largest purchase of a diagnostic equipment or test kit maker in the last year, according to data compiled by Bloomberg. The next largest was Thermo Fisher Scientific Inc. (TMO)’s purchase of Phadia for $3.5 billion last May.

Hologic is paying about 19 times earnings before interest, taxes, depreciation and amortization. That compares with the median of 17 across 15 similar deals over the past decade, the data show.

Strategic Fit

“Strategically this makes all the sense in the world,” said Bill Quirk, an analyst with Piper Jaffray Cos. in Minneapolis. “The two companies have a strong presence in women’s health, but have little overlap and pretty complementary products,” he said in an interview.

Hologic has 500 people in China, where Gen-Probe only has two, Cascella said on a conference call with investors today.

“What we intend to do is leverage the products of Gen- Probe with the existing infrastructure we have,” Cascella said. “What this does is accelerate market penetration of their products with a ready-made distribution channel.”

Gen-Probe Chief Executive Officer Carl Hull was selected in November to replace Hank Nordhoff as chairman. Nordhoff served as president and CEO from 1994 to 2009, then as chairman until he retired.

Hologic also reported today a net loss for the three months ended March 24. The loss of $40.3 million, or 15 cents a share, compared with a net income of $82.4 million, or 31 cents, a year earlier.

Deal Financing

Hologic plans to fund the transaction through available cash, with additional financing from term loans and high-yield securities. The company has obtained committed financing from units of Goldman Sachs Group Inc., which also served as a financial adviser alongside Perella Weinberg Partners. Brown Rudnick LLP and Jones Day provided legal counsel to Hologic. Morgan Stanley acted as financial adviser to Gen-Probe, while Skadden, Arps, Slate, Meagher & Flom LLP and Cooley LLP gave legal advice.

Bloomberg News reported last year that Gen-Probe had hired Morgan Stanley to seek a buyer for the company.

To contact the reporter on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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