Endo Pharmaceuticals to acquire American Medical Systems

Apr 11 2011

Endo Pharmaceuticals (Nasdaq: ENDP) and American Medical Systems (AMS) (Nasdaq: AMMD) announced today that they have entered into a definitive agreement under which Endo will acquire AMS, a leading provider of world-class devices and therapies for male and female pelvic health, for $30 per share, or $2.9 billion in cash, which includes the assumption and repayment of $312 million of AMS debt. The combined company will be positioned to deliver more comprehensive healthcare solutions across its diversified businesses in branded pharmaceuticals, generics and devices and services, in the key therapeutic areas of urology and pain.

AMS is a market leading provider of medical devices and therapies that help restore pelvic health, and is recognized as a technology leader for developing minimally invasive and more cost effective solutions, serving urologists, urogynecologists, and gynecologists. AMS' business consists of three segments: Men's Health, Women's Health and BPH (Benign Prostatic Hyperplasia) Therapy, with approximately 73 percent of its sales in the U.S. and the remainder coming from its international presence in Europe, Canada and the Asia Pacific and Latin America regions.

The acquisition will bring Endo scale in its devices and services business segment, and the combination of AMS with Endo's existing platform will provide additional cost-effective solutions across the entire urology spectrum. In addition, the acquisition will further Endo's diversification and increase revenue, earnings and cash flow streams. On a 2011 pro forma basis, the combined company, with approximately 4,000 employees, would have had revenues of approximately $3 billion and EBITDA of approximately $1 billion.

Commenting on today's transaction, Dave Holveck, President and Chief Executive Officer of Endo, said, "This acquisition is a great step in achieving Endo's core strategy. We are creating a company uniquely positioned to respond to the changing healthcare environment and the competitive, rapidly consolidating industry landscape. Through the acquisition of AMS, we will gain scale in devices and services, and will be positioned as a leading provider of healthcare solutions in the field of pelvic health, with a full spectrum of product offerings ranging from pharmaceuticals to medical devices."

The transaction accelerates Endo's growth, enhanced by the growth potential of AMS' current existing commercial portfolio, as well as potential new product introductions. AMS has a leading position in several product categories that have grown revenues in the mid-to-high single digit range, which is anticipated to continue over the long term. These include a broad range of products for erectile dysfunction prostheses and male and female incontinence, as well as GreenLight® laser technology for enlarged prostate treatment. The company also has a strong pipeline of new products that will enhance the commercial portfolio and growth trajectory over the next few years.

AMS also is well positioned for a continued increase in procedure volumes and a steady increase in the use of minimally invasive surgical procedures. This anticipated revenue and earnings growth, combined with strong margins and solid free cash flow generation, make AMS a compelling strategic fit for Endo.

Anthony Bihl, President and Chief Executive Officer of AMS, added: "Today's announcement brings together two market leading companies, with complementary strengths and assets. I believe that the two will be a great strategic fit, with AMS building on Endo's existing devices & services segment and allowing our management and employees to accelerate the growth of our business to improve the quality of life for a growing number of men and women."

AMS has an experienced management team, who average between 15 and 20 years in the medical device industry. AMS complements Endo's existing platforms in several areas, with strong manufacturing capabilities to support its existing portfolio and growth profile. Importantly, AMS also has a highly regarded sales force with an excellent reputation in the urology space.

Under the terms of the merger agreement, which has been unanimously approved by the Boards of Directors of both companies, Endo will acquire 100 percent of the shares of AMS for $30 per share or a total cash consideration of $2.9 billion in cash, which includes the assumption and repayment of $312 million of AMS debt. Endo has fully committed financing in place to complete the transaction.

Financial Benefits

Endo expects the transaction to be immediately accretive in 2011 on an adjusted diluted EPS basis. Endo expects that the combination will be immediately accretive to adjusted diluted earnings per share upon close and accretive by $0.60 in 2012, growing to approximately $0.80 in 2013. Endo also expects to achieve at least $50 million in cost synergies by 2013. These synergies are expected to come from duplicative SG&A expenditures, manufacturing efficiencies, and procurement savings. On a reported or GAAP basis, Endo expects the transaction to be dilutive to 2011 earnings by $0.61, dilutive to 2012 earnings by $0.05 and accretive to 2013 earnings by $0.25, reflecting purchase accounting and other transaction-related charges.

The transaction is subject to approval by AMS stockholders and clearance by the relevant antitrust authorities, and is expected to close late in the third quarter of 2011.

Morgan Stanley and BofA Merrill Lynch have provided fully committed financing to Endo to close this transaction.

Financial Guidance Reiterated

Endo also reiterated its stand alone 2011 revenue guidance of between $2.35 to $2.45 billion and full year adjusted diluted earnings per share to be between $4.20 to $4.30 per share. Endo also estimates reported (GAAP) diluted earnings per share to be between $2.43 and $2.53 per share.