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Hologic Inks Deal to Acquire Gen-Probe for $3.7B

NEW YORK (GenomeWeb News) – Hologic announced prior to market opening today that it will acquire Gen-Probe for approximately $3.7 billion, creating what company officials called the largest diagnostics company focused on women's health.

Terms of the all-cash transaction call for Hologic to acquire all outstanding shares of Gen-Probe for $82.75 per share, funded through available cash and additional financing.

Hologic said that it expects the deal to close in the second half of 2012, subject to approval by GenProbe's shareholders and other customary closing conditions.

The deal comes a year after Gen-Probe hired Morgan Stanley to seek a buyer for the firm. Though reports suggested that Thermo Fisher Scientific, Life Technologies, and Novartis were all bidders, none of them went through with a deal to acquire Gen-Probe.

The transaction allows Hologic to combine Gen-Probe's automated Tigris and Panther platforms and associated menu of sexually transmitted disease tests, including the Aptima chlamydia/gonorrhea, human papillomavirus, and Trichomonas products, with its own portfolio of women's health testing platforms. In addition, Gen-Probe's Procleix line of HIV, hepatitis C virus, hepatitis B virus, and West Nile virus blood screening products and strong partnership with Novartis provide an attractive market, with a global reach and significant growth opportunities for the combined company, Hologic said.

In a conference call discussing the acquisition, Hologic President and CEO Rob Cascella noted that the acquisition will create a "leading diagnostics franchise focused on women's health."

"This transaction combines best-in-class technology with strong market presence and global distribution to target the rapidly growing molecular diagnostics market," Cascella said.

Hologic had gained a foothold in the molecular diagnostics and HPV testing market through its 2008 acquisition of Third Wave Technologies. That deal provided Hologic with Third Wave's Invader chemistry, which underlies its Cervista cervical screening cancer test.

Hologic's diagnostics business was "deficient of Gen-Probe's broad product portfolio and automation platforms. More specifically, this gives Hologic critical mass in the molecular diagnostics market, and makes Hologic the largest molecular diagnostics company focused on women's health."

Cascella said that the transaction builds upon Hologic's existing capabilities – which include its Cervista test, Tomo breast cancer imaging platform, and Myosure fibroid removal procedure – by adding Gen-Probe's portfolio of molecular diagnostic tests for STDs. "This allows us to utilize Gen-Probe's superior automation platforms, Tigris and Panther, as well as the Aptima line of chlamydia and gonorrhea tests, and new assays for trichomonas and HPV testing," he said.

Further, the acquisition enables Hologic to offer a "combined class-leading cervical cancer screening solution with Cervista playing a key role serving lower-volume hospital and cytology labs, while Aptima HPV, running on the Tigris and Panther platforms, will serve high-volume customers benefitting from automation and menu."

Cascella added that the "bifurcated market approach" will also play "a valuable role in international markets to address both centralized and decentralized lab models."

Hologic also noted that Gen-Probe's Procleix line of HIV, HPV, HBV, and West Nile blood screening products allows it to participate in a "large market with an attractive financial profile and potential international growth," and "moves Hologic into the adjacent diagnostics market [for] infectious disease – new markets for Hologic [and] new opportunities for growth."

Cascella said during the call that the combined companies will have a "highly complementary combined sales and marketing organization. In addition to merging our laboratory sales promoting our entire portfolio of diagnostic products, Hologic's physician sales team will be instrumental in growing test utilization, driving compliance, and communicating screening guidelines."

The transaction is expected to be $0.20 accretive to Hologic's adjusted earnings per share in the first fiscal year after closing and "significantly more accretive" thereafter, the company said.

Glenn Muir, CFO and executive vice president of finance and administration, said that Hologic expects the transaction to accelerate top- and bottom-line growth rates. The combined company expects to realize approximately $75 million in cost synergies within three years following the close of the transaction and expects to have strong free-cash flows, which will be used primarily to reduce debt with the expectation to return the frim to pre-transaction debt levels within three years.

"We are poised to create significant long-term value for Hologic's shareholders," Muir said.

Gen-Probe employs approximately 1,400 people and expects 2012 revenues of between $630 and $655 million. The projected annual pro-forma revenue of the combined company is expected to total approximately $2.4 billion, with a combined adjusted EBITDA of approximately $822 million.

The combined company will maintain a core focus on diagnostics and women's imaging. On a pro-forma basis, 50 percent of Hologic's revenue will be in the diagnostics market, 38 percent in women's imaging, and 12 percent in surgical, Muir said.

In addition, "our emphasis continues to be on women's health, accounting for 86 percent of the combined company's pro-forma revenue," Muir said.

Hologic said that it expects to generate annual cost synergies of approximately $75 million within three years following the close of the transaction, and $40 million in cost synergies in year one. These synergies include cost efficiencies, overhead consolidation, and shared resources, Muir said.

Cascella also noted during the call that Gen-Probe will become a wholly owned subsidiary of Hologic, and that Hologic expects to retain Gen-Probe's senior management and a "significant presence in San Diego." Gen-Probe Chairman and CEO Carl Hull will oversee the combined diagnostics businesses following closure of the deal.

"While Gen-Probe has been subject to take-out speculation in the past, we believe investors were not anticipating a near-term event following the fall-out from last year's purported M&A speculation," Raymond James analyst Nicholas Jansen said in a research note published this morning. "We view the valuation as generally consistent with expectations, although we would not be surprised if other parties got involved given Gen-Probe's new product story, the prior M&A speculation, and the company's partnership with Novartis in the blood screening business."

In Monday morning trade on the Nasdaq, shares of Gen-Probe jumped 19 percent to $81.61. Hologic was down 9 percent at $19.35, also on the Nasdaq.

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