NEW YORK, April 19 – In settling a suit with PerkinElmer Thursday, Genomic Solutions has paid PerkinElmer $5.5 million to buy back a large part of its stock, and given UK distribution rights to its products to PerkinElmer, but the settlement may make the company more attractive to investors, analysts are saying.
The settlement terminates PerkinElmer’s “call right” to shares of Genomic Solutions stock, which allowed PerkinElmer to call in all shares of Genomic Solutions and become the sole shareholder.
“I think it ultimately works out really well for the company to get rid of the call option,” said Thomas Flaten, a researcher who covers Genomic Solutions for Dain Rauscher Wessels. “The majority of the investment community views PerkinElmer’s call option on the company negatively. It could theoretically limit the upside [of investments] to 20 percent.”
The call option also prevented many mutual funds and institutional investors from investing in genomic solutions stock, due to rules that prevented them from investing in callable securities.
“The callable common stock was an impediment for institutional investors to invest in our company,” said Kathleen Murphy, a Genomic Solutions spokeswoman. “When investors did due diligence, our stock didn’t seem as attractive. “
The lawsuit arose when Genomic Solutions entered into an agreement with an unnamed third party, which Flaten said was a merger agreement. PerkinElmer claimed in the suit that the agreement would effectively terminate its call right.
In the settlement, Genomic Solutions has agreed to buy back 69 percent of PerkinElmer’s 5.2 percent equity stake in the company, leaving PerkinElmer with 1.6 percent.
Genomic Solutions also signed a new distribution and sales agreement with PerkinElmer after the settlement, giving its UK distribution rights for its products to PerkinElmer, which already had distribution rights to Genomic Solutions’ products in Europe and Asia. As part of this new distribution agreement, PerkinElmer will get the rights to distribute Genomic Solutions’ microarrays, and the absolute minimums on sales will be higher.
The shift in UK distribution rights to PerkinElmer will reduce Genomic Solutions’ gross profit margins on its products, Dain Rauscher Wessels analyst Todd Nelson wrote in a report on the settlement released Thursday. According to Nelson’s estimates, UK sales for Genomic Solutions accounted for $4.0 million of Genomic Solutions’ $19.1 million in 2000 revenues.
Adding this revision to a disappointing first quarter, Genomic Solutions has reduced its financial expectations for the year. In February, Genomic Solutions CEO Jeffrey Williams predicted that the company would be profitable by the end of 2001. But in its first quarter earnings report, released Thursday, the company said it expected to continue to post losses for the remaining three quarters of the year.
On the bright side, the new distribution agreement could actually help Genomic Solutions in the long run, according to Flaten. “The other way to look at it is that now [Genomic Solutions] has PerkinElmer’s distribution capabilities in the UK,” Flaten said.
PerkinElmer acquired NEN Life Sciences in August, which has sales offices in Belgium, France, Germany, Italy, the Netherlands, Sweden, Switzerland, and the UK. In November, PerkinElmer announced plans to beef up its European sales force 15 percent and to consolidate its operations.
With the NEN acquisition, PerkinElmer acquired a single microarray product. Now, the company can augment this offering with Genomic Solutions' three specialty microarrays, as well as the three others Genomic Solutions plans to offer by the end of the year. The addition of these microarrays to PerkinElmer's sales arsenal “will give PerkinElmer more things to put in their salespersons' bag,” Flaten said, and will “broaden the distribution channels for [Genomic Solution] pre-printed microarrays.”
To actually improve the outlook for Genomic Solutions, however, PerkinElmer's European sales force will have to pull out of a slump. Genomic Solutions blamed its poor first quarter performance, in which it posted losses of 12 cents per share, 4 cents in excess of Wall Street’s expectations, on the weak sales in Europe.
But Flaten said that the settlement of the lawsuit could change things drastically for PerkinElmer-Genomic Solutions sales efforts. “The lawsuit had a lot to do with the fact that PerkinElmer sales representatives weren’t performing. The relationship was on rocky ground.” Going forward, Flaten said he thinks PerkinElmer is going to provide Genomic Solutions with a “stronger, broader, and deeper distribution channel for their products.”