The Irish medical device maker
) decided to acquire Israel-based diagnostic products maker Given
Imaging in order to be a big part of the $3 billion GI
(gastrointestinal) market. The news led the stock to go up by
0.1% after the market closed yesterday.
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COV will acquire the company for $30.00 per share, totaling $860
million, utilizing its cash balance. Given Imaging, formed in
1998, manufactures products for visualization, monitoring and
diagnosis of gastrointestinal problems. Its products are based on
technology used for guided missiles.
Given Imaging is famous for designing a camera-in-a-pill,
PillCam, which is used as a swallowed capsule endoscope. The
addition of Given Imaging's products to Covidien's portfolio
serves its strategy to support physicians with products that
range from diagnosis to treatment.
The acquisition is expected to be completed by Mar 31, 2014 after
COV purchases all Given's shares, including those traded on the
Tel Aviv Stock Exchange and the Nasdaq. The boards of both COV
and Given Imaging have approved the deal. The shareholders of
Given Imaging, with a 44% stake in the company, have voted in
favor of the acquisition as well.
The three units of Nochi Dankner's IDB group − Elron Electronic
Industries, Discount Investment Corporation, and RDC Rafael
Development Corporation - have agreed to divest their stakes in
Post-acquisition, Given Imaging will be reported as part of
Covidien's Medical Devices segment. COV anticipates the
acquisition to result in addition of $40 to $50 million per
quarter in incremental revenues to the medical devices segment.
On a reported basis, the transaction is expected to be dilutive
to operating margin and earnings per share in fiscal 2014. On an
adjusted basis, Covidien expects the acquisition to be neutral to
both operating margin and EPS in fiscal 2014. However, the
acquisition is expected to be accretive to operating margin and
EPS both on a reported and adjusted basis in fiscal 2015 and
Covidien, a Zacks Rank #3 (Hold) stock, posted adjusted earnings
per share from continuing operations of 91 cents for the fourth
quarter of fiscal 2013, which beat the Zacks Consensus Estimate
by a penny. Adjusted earnings also increased 6% from 86 cents
reported in the prior-year quarter, despite headwinds from
foreign exchange movements, the medical device excise tax and
escalated investments in emerging markets.
For fiscal 2013, COV's adjusted earnings per share from
continuing operations increased 3% to $3.72, beating the Zacks
Consensus Estimate by a penny. However, net income declined 2% to
$1,600 million (or $3.40 a share) from $1,637 million (or $3.37
per share) a year ago.
Revenues in the fourth quarter grew 2% (up 5% in constant
currency) to $2,560 million, almost in line with the Zacks
Consensus Estimate of $2,561 million. On a geographic basis,
revenues in the U.S. market decreased 2% to $1,295 million. On
the other hand, international revenues climbed 8% (13% in
constant currency) to $1,265 million, driven by emerging market
For fiscal 2013, revenues grew 4% to $10,235 million, roughly in
line with the Zacks Consensus Estimate of $10,238 million. On
constant currency basis, revenues increased 6%.
Covidien has not changed its guidance, provided in the last
reported quarter, due to the acquisition. The company expects
revenues to grow 2-5% year over year at constant exchange rate
(CER) for fiscal 2014. Revenues for the core Medical Devices
segment is anticipated to grow in the range of 2-5%, while the
same for the smaller Medical Supplies business is likely to
remain flat in the fiscal year.
Moving ahead, adjusted operating margin is likely to remain in
the band of 21.5-22.5% and effective tax rate in the range of
16.0-17.0%. Moreover, COV is aiming a dividend payout ratio in
excess of 35% over time and is targeting to achieve a ratio of at
least 30% within the next 12 months.
Some better-ranked stocks in the medical products sector include
Hill-Rom Holdings, Inc.
). Hill-Rom Holdings carries a Zacks Rank #1 (Strong Buy),
while both NuVasive and diaDexus carry a Zacks Rank #2 (Buy).