Ohio-based medical equipment manufacturer Steris Corp. (STE) has offered to buy U.K.-based outsourced sterilization services provider Synergy Health plc for $1.9 billion in cash and stock.
Steris also announced plans to move its corporate headquarters to U.K., reportedly to lower its tax burden. However, the combined entity's operational and U.S. headquarters will continue to function at Mentor, Ohio.
Following this news, Steris' share price inched up 0.3% immediately, but eventually dropped 2.5% to close at $54.99 yesterday.
Benefits of the Deal
The acquisition will bring together Steris' Infection Prevention and Services businesses and Synergy's Hospital Sterilization Services. Thus a new global leader will emerge in infection prevention and sterilization that should provide improved healthcare services to medical device companies, pharma companies, and hospitals across the globe.
The buyout should boost Steris' presence in the international markets providing it an opportunity to better serve the emerging markets of Asia-Pacific and Latin America.
This transaction is expected to be significantly accretive to New Steris' (the combined business) adjusted earnings per diluted share in fiscal 2016 and beyond.
Is Steris Trying to Save Tax?
Recently U.S. companies have been observed to be acquiring offshore companies in nations that offer lower tax rate in an attempt to cut down their tax bills.
Steris' move to buy Synergy Health seems to be induced by a similar motive. Evidently, post-acquisition, estimated annual pre-tax cost savings will be $30 million or more, which will be phased in 50% in fiscal 2016 and 100% thereafter. New Steris is expected to have an effective tax rate of approximately 25% by fiscal 2016.
Details of the Deal
The valuation of the transaction has been determined based on Steris' closing stock price of $56.38 per share as of Oct 10. The acquisition is expected to be over by Mar 31, 2015.
Post-acquisition, both Steris and Synergy will merge to form subsidiaries of U.K.-based “New Steris”; which is expected to generate annual revenues of approximately $2.6 billion with employee strength of 14,000.
Steris' investors will own approximately 70% of shares in New Steris while Synergy shareholders will own around 30%.
However, this financial transaction remains subject to certain customary closing constraints, including approvals by Steris and Synergy's investors as well as regulatory go-aheads in the U.S. and U.K. Meanwhile, Steris has obtained a 364-Day Bridge Credit Agreement to finance this transaction.
Zacks Rank
Currently, Steris holds a Zacks Rank #2 (Buy). Other well-placed stocks in the med/dental-supply industry include The Cooper Companies Inc. (COO), Cardinal Health, Inc. (CAH) and DENTSPLY International Inc. (XRAY). While The Cooper Companies sports a Zacks Rank #1 (Strong Buy), both Cardinal Health and DENTSPLY International hold the same Zacks Rank as Steris.
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
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment