Varian Eyes MeVis to Enhance Imaging Components Portfolio - Analyst Blog

Global medical devices maker Varian Medical Systems, Inc. (VAR) has announced its intention to acquire Bremen, Germany-based MeVis Medical Solutions AG – a provider of image processing software and services for cancer screening.

The acquisition of MeVis will add cancer screening software to Varian's Imaging Components product portfolio. Varian intends to integrate MeVis technology to offer its customers smarter flat-panel detectors and imaging workstations for cancer screening.

The acquisition will also include the proprietary MeVisLab software platform – a research and development environment facilitating the efficient realization of tailored software solutions using a rapid prototyping approach. Early detection and treatment of tumors can have a significant impact on outcomes in cancer treatment. The MeVis buyout will also provide Varian the prospect of adding advanced software for early cancer detection to its portfolio.

Following the acquisition, the MeVis team will continue to develop cancer screening and image processing applications at its current facility in Bremen. The team will operate under Varian's Imaging Components business, which is headquartered in Salt Lake City, UT.
 
Transaction Details

VMS Deutschland Holdings GmbH, a Varian affiliate, will make the voluntary public tender offer to all MeVis shareholders to buy their non-par value registered shares at a price of €17.50 per share, for an expected total payment of €30 million (roughly $37 million) if all outstanding shares are tendered.  

Varian's offer reflects a roughly 16% premium over MeVis' average share price over the past six months.  The offer is subject to a minimum acceptance rate of 75% of the outstanding shares of MeVis. A number of major shareholders have already committed to accepting the offer, representing over 70% of the total shares outstanding.

Varian plans to file its tender document according to German law in mid-Jan 2015. The tender will be formally launched after approval of the document by the German Financial Supervisory Authority.  The acquisition is expected to conclude in Apr 2015.

While the transaction is not expected to have any material impact on Varian's revenues and earnings in fiscal 2015, the company will provide financial details upon closing of the transaction.

Future Potential

Cancer screening is a growing global focus. Early detection has been shown to save lives in both breast and lung cancer cases. It is being estimated that in 2014, 224,000 cases of lung and bronchus cancer will be detected in the U.S. alone, with a five-year survival rate of only 17%.   

Recently, the U.S. Centers for Medicare & Medicaid Services (CMS) issued a proposal to start reimbursing for CT scans for people with a high risk of developing lung cancer.  It is estimated that roughly 8 million patients could become eligible for this screening.

Varian continues to invest in developing new platforms and technologies in order to improve its customer base and competitive position. We believe that Varian has significant growth opportunities in the cancer care market, owing to its innovative product portfolio.

However, Varian faces intense competition from the likes of PerkinElmer, Inc. (PKI), Siemens and Koninklijke Philips N.V (PHG) as well as smaller and more specialized radiation therapy equipment manufacturers like Elekta AB and Accuray Inc. (ARAY).

Currently, Varian carries a Zacks Rank #5 (Strong Sell).

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