Steris Corp. STE has announced that together with Synergy Health plc, it will contest the U.S. Federal Trade Commission’s (FTC) efforts to block the proposed merger of the two companies. This comes in response to an administrative complaint filed by the FTC. The Commission has claimed that the deal violates antitrust laws, as it may potentially reduce competition in the regional markets for sterilization of products using radiation.
In Oct 2014, U.S.-based Steris had proposed to buy U.K.-based Synergy Health for $1.9 billion in cash and stock. The acquisition aims at combining Steris' Infection Prevention and Services with Synergy's Hospital Sterilization Services business.
The deal is in line with other tax inversion mergers announced last year that were targeted to cut down on the tax bills of U.S. companies by shifting their tax base overseas.
Post-acquisition, Steris’ estimated annual pre-tax cost savings out of the deal will be in excess of $30 million, which will be phased in 50% in fiscal 2016 and 100% thereafter.
However, this deal has been hanging in the balance ever since it went under the FTC scanner in Oct 2014. In Apr 2015, both the companies had submitted the documents in response to FTC’s Request for Additional Information and Documentary Material related to the deal, effectively extending the initial deal closing date of Mar 31, 2015.
Alongside, the two companies had reported a timing agreement with the FTC, under which they would not close the deal before June 2, 2015 unless the FTC first completed its investigation. Amid such situation, the verdict by FTC stating that the deal will violate the antitrust laws further complicates the matter.
The Commission also employed agency staff to seek a temporary restraining order and preliminary injunction in the federal court to block this deal. The administrative trial is scheduled to begin on Oct 28, 2015.
Meanwhile, according to both Steris and Synergy Health, neither of them has received any formal complaint or announcement regarding this matter from the FTC. The companies maintain that the merger is pro-competitive and should be a strategic fit for both the businesses. Accordingly, both the entities are open to a full judicial review of the competitive effects of the transaction. They believe once the facts of the merger come to light, the injunction request of FTC will hold no solid ground in the court of law.
However, the charge brought forward by the FTC has forced both the parties to extend the long-stop date for the deal closure (which is subject to the U.K. court approval) to Dec 31, 2015 from the previously announced July 12, 2015.
Given the merits of this deal, we are hopeful that the court’s verdict comes in favor of the merger. However, we remain on the sidelines until Oct 28 for this matter to be settled. Nevertheless, management’s intention to vehemently challenge the FTC’s claims in court bolsters our confidence in the stock for the time being.
Zacks Rank
Currently, Steris bears a Zacks Rank #3 (Hold). Some better-ranked medical-dental/supply stocks are AmerisourceBergen Corporation ABC, Laboratory Corp. of America Holdings LH and Luxottica Group SpA LUX. All the three stocks hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment