DENTSPLY International Inc. XRAY and Sirona Dental Systems SIRO recently announced the expiration of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 related to their proposed merger transaction. The companies now expect the transaction to be completed in the first quarter of 2016, provided other customary closing conditions are fulfilled.
In September, DENTSPLY announced its plans to take over Sirona in an all-stock deal, worth nearly $5.5 billion. Under the terms of the deal, shareholders of Sirona will get 1.8142 shares of DENTSPLY for each existing Sirona share. Post completion of the transaction, DENTSPLY shareholders will hold 58%, while Sirona shareholders will own 42% of the combined entity.
The merged entity, to be known as DENTSPLY SIRONA, is expected to have a pro forma equity value of about $13.3 billion (based on closing prices of the companies as on Sep 14, 2015). The new entity will trade on the NASDAQ under the ticker “XRAY”.
DENTSPLY SIRONA will be one of the leading global manufacturers of professional dental products and materials. It will offer a range of complementary products for dental offices – from fluoride rinses to dental chairs.
The merged entity also plans to buy back shares worth $500 million after the completion of the deal. In addition, the new company expects to continue paying DENTSPLY's current dividend of 29 cents per share. This is expected to entice investors, going forward.
The new entity is also likely to achieve significant cost and revenue synergies on the back of an expanded product portfolio, a bigger customer base and better infrastructure. In fact, the merger is expected to deliver annual pre-tax synergies of more than $125 million by the third year of closing the deal.
Meanwhile, DENTSPLY reported mixed results in the third quarter of 2015. Adjusted earnings of 66 cents per share beat the Zacks Consensus Estimate by 3 cents and improved 6.5% on a year-over-year basis. However, net sales declined 8.4% to $648.9 million and fell short of the Zacks Consensus Estimate of $663 million.
Notably, operating margin expanded nearly 230 bps on a year-over-year basis to 20.3%, primarily supported by DENTSPLY’s global efficiency program that resulted in lower operating costs. The program helped DENTSPLY to realize its aim of achieving operating margin of 20% announced in Apr 2014, much earlier than its target of 2017.
DENTSPLY also raised its 2015 adjusted earnings to the range of $2.58–$2.64 per share, compared with the previous guidance of $2.54–$2.62 for the full year. We believe that new products and improving operating efficiency will drive overall results, going forward. However, foreign exchange volatility will continue to remain a headwind in the near term.
Zacks Rank & Key Picks in the Sector
Currently, DENTSPLY has a Zacks Rank #2 (Buy). Other favorably ranked stocks in the same space are Natus Medical BABY and Masimo MASI. Both stocks sport a Zacks Rank #1 (Strong Buy).
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