Bayer AG agreed to buy Conceptus Inc. for about $1.1 billion in cash to add a permanent contraception device to complement the German company’s offerings in women’s health.
Conceptus holders will receive $31 a share in cash, the companies said in a statement today. The price is 20 percent above the April 26 closing level for Mountain View, California-based Conceptus of $25.90. Conceptus rose the most in a year in U.S. trading.
Revenue for Conceptus’s Essure contraceptive, a pair of flexible metal and fiber coils inserted in the fallopian tubes, jumped 22 percent in the first quarter. The planned acquisition comes at a time when sales of Leverkusen, Germany-based Bayer’s Yaz and Yasmin oral birth-control pills are falling because of competition from low-priced copies. Bayer also sells the Natazia pill and intrauterine devices such as Mirena.
“They have been quite strong in this area,” said Odile Rundquist, an analyst with Helvea SA, in a telephone interview. “Now with generic competition for Yaz, they could offset a decline in that franchise. It’s complementary.” She has an accumulate rating on Bayer stock.
Conceptus rose 20 percent to $30.96 at the close in New York, the biggest gain since April 30, 2012. Bayer shares rose 0.4 percent to 79.57 euros in Frankfurt. The company plans to begin a tender offer for Conceptus within 10 business days, and expects to complete the purchase by midyear, subject to U.S. antitrust approval, according to the statement.
The purchase values Conceptus at 44.8 times earnings before interest, tax, depreciation and amortization, according to data compiled by Bloomberg. That’s more than twice the average multiple paid for health-care products companies with market values of $500 million or more in the past year.
Conceptus shares had moved above Bayer’s offer price in trading before U.S. exchanges opened, indicating some investors were speculating on a higher bid.
“Those are pretty strong multiples,” Chris Cooley, an analyst with Stephens Inc., said in a telephone interview. “I wouldn’t anticipate someone trying to outdo $1.1 billion in cash.”
Conceptus agreed not to solicit competing bids, and the company will pay Bayer a $37.3 million termination fee if it accepts a higher offer, according to a filing with the U.S. Securities and Exchange Commission.
Guenter Forneck, a spokesman for Bayer, declined to comment on the prospect of a higher bid.
“The board of directors of Conceptus conducted a thorough, robust and formal process. For various reasons, the board concluded that the transaction with Bayer was the most compelling,” the company said in a statement.
Bank of America Merrill Lynch advised Bayer on the purchase, while Goldman Sachs Group Inc. advised Conceptus.
Bayer will probably need to promote Essure, expanding its global reach, to justify the price of the acquisition, Alistair Campbell, an analyst at Berenberg Bank in London, said in a telephone interview.
U.S. regulators approved the device in 2002. It provides permanent contraception, much in the way tubal ligation does. Unlike that procedure, though, it requires neither surgery nor general anesthesia.
A doctor can insert the coils via the vagina and the uterus in a 10-minute procedure. Once in place, the devices elicit tissue growth that will block the fallopian tubes within a few months, preventing sperm from reaching an egg. More than 750,000 women have undergone the procedure, according to Conceptus.
“Conceptus truly has a unique proposition in the women’s health-care arena with the Essure technology,” Cooley said. “As different methodologies of birth control become increasingly available, it’s likely to receive greater use.” Cooley has an equal-weight, or hold, rating on Conceptus shares.
Conceptus today reported a first-quarter profit of $1.9 million, compared with a loss of $2.8 million a year earlier. Sales rose 17 percent to $34.1 million.
Bayer’s Yaz and Yasmin contraceptive sales declined 16 percent to 206 million euros in the quarter, the company said this month. The German drugmaker also has paid to settle lawsuits brought by consumers who say they suffered blood-clot injuries from the pills. Bayer had 1.19 billion euros ($1.56 billion) of litigation expenses in 2012 for Yasmin and Yaz.
“Bayer is committed to augmenting its organic growth with strategic bolt-on acquisitions,” Chief Executive Officer Marijn Dekkers said in the statement. “The acquisition of Conceptus represents an excellent fit for our health-care business -- specifically in the United States, the world’s most important health-care market.”
Conceptus was founded in 1992 and sold shares in an initial public offering in 1996. The closing stock price April 25 was a record high.
The acquisition is the first that Bayer has announced of a publicly traded company since October, when it agreed to buy vitamin maker Schiff Nutrition International Inc. for about $1.1 billion. Bayer walked away from the deal after a higher bid from Reckitt Benckiser Group Plc.