Siemens Healthineers AG (SEMHF) announced on Sunday that it plans to acquire U.S. cancer device and software company Varian Medical Systems (VAR) in an all-stock deal valued at $16.4 billion.
As part of the purchase agreement, Siemens will acquire all of Varian’s shares for $177.50 per share in cash, which reflects a 24% premium to the company’s closing price of $142.72 on Friday. The deal builds on a long-standing partnership between the two companies to develop improved cancer therapy solutions – from medical imaging for treatment planning, focused radiation therapy, to laboratory diagnostics – for efficient workflow and effective, personalized treatment.
The acquisition is expected to positively contribute to Siemens’ adjusted basic EPS within the first 12 months following its closure, which is scheduled for the first half of 2021. In addition, Siemens aims for EBIT synergies of at least EUR 300 million per annum in fiscal 2025.
“With this combination of two leading companies we make two leaps in one step: A leap in the fight against cancer and a leap in our overall impact on healthcare,” said Siemens Healthineers CEO Bernd Montag. “This decisive moment in the history of our companies means more hope and less uncertainty for patients, an even stronger partner for our customers, and for society more effective and efficient medical care.”
Siemens plans to finance the deal with a mix of debt and equity. The acquisition is still subject to approval by Varian shareholders, receipt of regulatory approvals and satisfaction of other customary closing conditions.
Based in California, Varian is a global specialist in the field of cancer care, providing solutions especially in radiation oncology and related software, including technologies such as artificial intelligence, machine learning and data analysis. In fiscal year 2019, the company generated $3.2 billion in revenues with an adjusted operating margin of about 17%. The company currently has about 10,000 employees worldwide.
Last week, Piper Sandler analyst Jason Bednar raised Varian’s price target to $142 from $130 and reiterated a Buy rating on the shares ahead of the company’s fiscal Q3 results.
The analyst suggests investors take a post-COVID view. He believes Varian management’s efforts in recent years to accelerate the innovation cycle and shift the revenue mix towards higher margin recurring revenue sources, will translate to an “upper quartile” earnings grower in medical technology on the other side of COVID-19.
In line with Bednar’s outlook, the rest of the Street has a bullish outlook on the stock. The Strong Buy analyst consensus boasts 6 unanimous Buy ratings. With shares up more than 28% over the past three months, the $139 average price target implies 2.6% downside potential over the coming year. (See VAR stock analysis on TipRanks)
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