Endo Pharmaceuticals Holdings Inc., seeking to reduce dependence on its top-selling painkiller, agreed to buy American Medical Systems Holdings Inc. for $2.9 billion to add urology products.
Stockholders of American Medical, which makes incontinence treatments, will get $30 a share, Chadds Ford, Pennsylvania-based Endo said today in a statement. That’s 34 percent above the April 8 closing price for Minnetonka, Minnesota-based American Medical. Endo will also assume $312 million of American Medical’s debt.
With the purchase, Endo may generate $1 billion in urology sales by next year, Chief Executive Officer Dave Holveck said in a telephone interview. The painkiller Lidoderm, which loses patent protection in 2015, generated $783 million in sales last year, or about 46 percent of Endo’s revenue.
“The street likes it because it’s accretive in a somewhat sizeable way to 2012 and 2013 numbers,” said Ian Sanderson, an analyst with Cowen & Co., in a telephone interview today. “We now have a bit more conviction that Endo can grow their earnings at a double-digit rate in each of those years.”
American Medical rose $7.17, or 32 percent, to $29.50 at 4 p.m. in Nasdaq Stock Market composite trading. Endo rose 21 cents to $41.06.
“Our shareholders have been very concerned about the dominance of Lidoderm, and we’ve blunted that with diversification” through acquisitions, Holveck said in a telephone interview. “The deal adds to our core urology franchise, bringing us innovation.”
American Medical provides devices and treatments used by doctors to treat incontinence in both men and women, generating about $542.3 million in revenue in 2010.
Endo will continue to seek “small, bolt-on” acquisitions in each of its businesses to enhance growth, Holveck said during a conference call today.
Smaller acquisitions are “always in the cooker,” Holveck said in the interview. “I’m always reluctant to give more detail, but we do have activities moving.”
Holveck said in January he was seeking purchases to expand in diagnostic tools for urology and cancer, in comments at the J.P. Morgan Healthcare Conference in San Francisco.
The American Medical purchase, to be completed late in the third quarter, will increase Endo’s earnings this year on an adjusted diluted per-share basis, the company said. Endo may boost profit by 60 cents a share in 2012 and by 80 cents in 2013, according to the statement.
Endo has announced seven acquisitions in the last five years, with an average disclosed size of $683.4 million and an average premium of 47 percent, according to data compiled by Bloomberg. American Medical Systems would be the largest, the data show.
In the past 12 months there have been 222 acquisitions announced of U.S. health-care product manufacturers, with the average size of a deal being $273.4 million, including net debt. The average premium announced was 89 percent.