Sirtex Medical Ltd. (ASX: SRX)

Sirtex Medical Ltd.’s (ASX: SRX) shares went into a trading halt as indicated in the notification of January 30, 2018 pending an announcement relating to a potential material corporate transaction. While investors were speculative of the type of transaction (acquisition or divestment), the group released the announcement post market close flagging that SRX board has unanimously recommended to go ahead with acquisition of all the outstanding shares of Sirtex by Varian Medical Systems (NYSE: VAR, an integrated cancer care solutions provider) for A$28 per share in cash. On a fully diluted basis, this represents a total equity purchase price for the acquisition of approximately A$1,585M. The group has also indicated about evaluation of the transaction by an independent expert, to be retained by Sirtex, to be in the best interests of Sirtex shareholders and in the absence of a superior offer.

While Varian will be able to strengthen its goals via its long-term strategy to become a global leader in multi-disciplinary integrated cancer care solutions, SRX will be able to expand the reach of its products to the clinical community.

It is worth noting that SRX stock has been gaining traction lately and has been up 37.35% in last three months (as at January 29, 2018). The group was already gaining attention as a takeover target lately, basis speculation in the media. SRX’s latest trading update was quite encouraging with unaudited, first-half EBITDA for the six months ended 31 December 2017 expected to be to $34m, i.e., a 16% growth on the prior corresponding period. The group also expects a better second half with higher sales given key management initiatives including lower operating expenditures. The high levels of EBITDA conversion to cash flow at the back of completion of major clinical studies, is also expected to yield strong cash flow generation. The full year FY18 underlying EBITDA is forecasted to be $75-85 million against $61.5 million of FY17. SRX is set to release its full first-half financial results on 21 February 2018.

Coming back to the deal details, the offer price of A$28 per share, represents a 49% premium to Sirtex’s closing price of A$18.83 per share on Monday. This is about 18.6x of the mid-point of the FY18 forecast earnings before interest, tax, depreciation and amortisation (EBITDA).The deal looks appealing and shareholders will have the opportunity to vote on the scheme in May 2018.

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