Varian Pops 24% In Pre-Market On $16.4B Buyout Deal; BTIG Sticks To Buy

Shares in Varian Medical Systems (VAR) are soaring 24% in pre-market trading as the U.S. cancer device and software company topped analysts’ estimates for profit in the third quarter and announced that it is being bought out by Siemens Healthineers AG (SEMHF) in a $16.4 billion deal.

The stock is surging to $176.93 in Monday’s pre-market trading after Siemens Healthineers said Sunday that it 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.

Separately, the company reported that adjusted earnings per share in the third quarter dropped 41% to $0.78 year-on-year but beat analysts’ expectations by $0.26. Total revenues declined 16% to $694.3 million in the same quarter, topping the Street consensus by $29.9 million.

“Our continued investments in our strategic enablers, combined with our strong financial standing, position us well to exit the pandemic stronger, and extend our global leadership in oncology,” said Varian CEO Dow Wilson. “We are pleased to announce a transaction with Siemens Healthineers – delivering immediate and compelling value to our shareholders, while bringing us even closer to realizing our transformative vision.”

The company ended the quarter with $769 million in cash and cash equivalents and $580 million in debt. Net cash provided by operating activities was $83 million.

Following the announcement of the buyout offer, BTIG analyst Marie Thibault raised the stock’s price target to $177.50 from $133 and maintained a Buy rating, saying that the deal reflects a “reasonable premium.”

“While unexpected — we viewed VAR as a routine acquirer but did not think the company was a likely near-term acquisition target — we do think the transaction makes sense given the two companies’ product portfolios and existing collaboration,” Thibault wrote in a note to investors. “This acquisition could allow both companies to find synergies while scaling efforts in hardware sales, service, software, and digital/AI offerings.”

In line with Thibault’s outlook, the rest of the Street has a bullish call on the stock. The Strong Buy analyst consensus boasts 6 Buy ratings versus 1 Hold rating. With shares up 28% over the past three months, the $152.33 average price target still implies 6.7% upside potential over the coming year. (Seee VAR stock analysis on TipRanks)