Gaining GI ground with Given Imaging

Covidien to acquire developer of PillCam, an optical capsule endoscope

Kelsey Kaustinen
DUBLIN—Covidien plc and Given Imaging Ltd. have announced the signing of a definitive agreement by which Covidien will acquire all of Given Imaging’s outstanding shares for $30 per share in cash, for an approximately deal total of $860 million, net of cash and investments acquired. Both companies’ boards of directors have approved the transaction. The boards of directors of DIC, Elron and Rdc, which hold 44 percent of Given Imaging’s outstanding shares, have approved voting in favor of the acquisition, and DIC has entered into a customary voting agreement with Covidien.
 
The acquisition is subject to customary closing condition, including approval by Given Imaging’s shareholders and certain regulatory approvals. The companies expect to complete the transaction by March 31.
 
“Given Imaging revolutionized GI diagnostics over 12 years ago with the launch of PillCam and created an entirely new diagnostic category—capsule endoscopy. The combination of Covidien’s established global presence and Given Imaging’s innovative capabilities has the potential to transform this market,” Homi Shamir, president and CEO of Given Imaging, commented in a statement. “After thoroughly evaluating our strategic options we determined that this transaction is in the best interests of Given Imaging, its shareholders and employees, and provides unique benefits to patients globally.”
 
Given Imaging develops diagnostic and monitoring technologies for the digestive system, with its lead product consisting of PillCam, a swallowed optical capsule endoscope. For the third quarter of 2013, sales of PillCam worldwide rose 9 percent to 63,500 capsules. The company’s product portfolio contains seven product lines for 21 gastrointestinal disease states, and also includes functional diagnostic solutions such as ManoScan high-resolution manometry, Bravo capsule-based pH monitoring, Digitrapper pH-Z monitoring and SmartPill motility monitoring systems.
 
The company reported revenues of $50 million for the third quarter of 2013, up 10 percent from the same period in 2012. GAAP earnings per share rose 5 percent to 20 cents per share, with both GAAP and non-GAAP net income reaching record levels at $6.5 million and $8.2 million, respectively.
 
“We believe GI is one of the most attractive specialty procedure areas. Acquiring Given will enable Covidien to significantly expand its presence in a $3-billion GI market,” said Bryan Hanson, group president of Medical Devices & U.S., Covidien. “Adding Given’s portfolio of diagnostics to our portfolio accelerates Covidien’s strategy of providing physicians with products that support the patient along the care continuum from diagnosis to treatment. It also confirms our leadership in developing less-invasive screening, diagnosis and treatment solutions that can improve patient outcomes and lower healthcare costs.”
 
Covidien expects that Given Imaging will add between $40 million and $50 million in incremental revenue to its Medical Devices segment per quarter once the transaction closes. The deal is expected to be dilutive on a U.S. GAAP basis to Covidien’s operating margin and earnings per share for fiscal 2014, and to become accretive to operating margin and earnings per share on a U.S. GAAP and adjusted basis as of fiscal 2015 and beyond. The transaction is expected to be immediately accretive from a “cash earnings” standpoint, which excludes amortization.
 
Stephen D. Simpson, an analyst for Motley Fool, called this “an interesting buy for Covidien,” commenting in an investor note that “Given is not selling itself cheaply,” as the deal price represents “four times 2014 sales and 20 times 2014 EBTIDA for a company that has pretty good gross margins but a rather uninspiring history of only single-digit operating margin.”
The note adds that Given has established “85-percent global share in the pill/capsule endoscopy market, despite competing with Olympus—one of the leading names in endoscopy,” and that the deal “should help build on the 2012 acquisition of Barrx, an endoscopic ablation technology company.” Covidien completed that transaction in January 2012, acquiring the company for an aggregate consideration of $325 million.

Kelsey Kaustinen

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