Siemens Healthineers to Buy Varian Medical for $16.4 Billion

(Bloomberg) —

Siemens Healthineers agreed to buy Varian Medical Systems in cash in a transaction that values the medical equipment maker at about $16.4 billion, more than 20% above its current market value.

The German company offered $177.5 a share for the Palo Alto, California-based business, which will be financed through both debt and equity, Siemens Healthineers said in a statement on Sunday. That’s 24% more than its closing price on Friday. Bloomberg was first to report the deal on Saturday.

Varian’s shares are little changed this year, leaving the company with a market value of about $13 billion. The stock recently traded at 38 times estimated earnings, compared with a multiple of 18 for the S&P 500 Health Care Index.

Siemens Healthineers said the purchase will a have a positive effect on earnings per share withing the first 12 months of the deal closing.

The acquisition comes amid early signs of a pick up in deals after the spread of the coronavirus and a worsening outlook for an economic recovery dampened sentiment this year. The deal will bring together two partners that have collaborated for more than a decade in areas such as radiotherapy diagnostics for cancer treatments. Varian’s linear accelerators could be a good fit for Healthineers’ MRI machines and CT scanners, a key division for the company that has seen slowing growth in recent quarters.

Erlangen, Germany-based Healthineers said two months ago its coronavirus antibody test received the U.S. Food and Drug Administration’s Emergency Use Authorization, which would allow users to identify recent or prior infection.

Revenue Slips

Healthineers, which spun off from Siemens AG in 2018, has advanced 2.7% this year, boosting its market capitalization to 43.6 billion euros ($51.4 billion). Revenue in third quarter was 3.31 billion euros while earnings before interest and taxes reached 461 million euros, the company said Sunday.

Chief Executive Officer Bernd Montag said at the end of 2019 that the company’s next acquisition would be “close to home.” “We’re not going to start doing, like, pacemakers, because it does not fit into our portfolio,” Montag said in an interview at the time.

Siemens, which remains majority stakeholder, will see its stake in Healthineers decline to about 72% from 85%, it said in a statement.

(Adds details of the deal in second and third paragraphs, background throughout.)

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