Healthcare Business

Are Volcano Shareholders Getting Enough in the Buyout?

Volcano Corp. (NASDAQ: VOLC) announced that it has entered into a definitive agreement to be acquired by Koninklijke Philips N.V. (NYSE: PHG). The buyout is priced at $18 per share and is valued at roughly $1.2 billion, and this is inclusive of Volcano’s cash and debt. The transaction is expected to close in the first quarter of 2015.

Volcano designs and manufactures guided therapy tools worldwide. Specifically the company is a global leader in catheter-based imaging and measurement solutions for cardiovascular applications.

Philips is acquiring Volcano to add it to its portfolio of interventional imaging equipment, navigation tools and services that the company sells worldwide. It is worth noting that one-third of interventional X-ray systems sold in the world are a Philips system. Ultimately these Philip’s systems provide visual maps that help guide catheters through the body to perform minimally invasive treatment.

What the future holds for Volcano and Philips is uncertain, but there is a big potential for upside. The combination of these companies can allow for accelerated sales growth through Volcano’s customer relationships, which can create cross-selling opportunities between the customer bases.

Basically the combination of Volcano’s clinical development coupled with Philip’s next generation of imaging technology has the potential to bring about higher growth. However, the question remains whether the shareholders of Volcano are getting enough, if the upside is really that high?

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A few key quotes from executives on both sides, beginning with Frans van Houten, CEO of Philips:

Volcano’s impressive and unique product portfolio is highly complementary to our strong offering in live image-guidance solutions, creating an opportunity to accelerate the revenue growth for our image-guided therapy business to a high single-digit rate by 2017. Our combined sales forces will be able to capture immediate cross selling opportunities, while our joint R&D teams will be able to develop new solutions to address significant unmet needs in the minimally invasive treatment of cardiovascular diseases.

Scott Huennekens, president and CEO of Volcano, said:

There is a large and growing global market opportunity for image-guided therapies, and as part of Philips, we gain the scale and resources needed to accelerate our goals of improving patient outcomes on a global basis, lowering cost and delivering innovative diagnostics and therapies in the coronary and peripheral markets

Volcano’s stock had a consensus analyst price target of $13.50 prior to the merger, with the highest analyst price target being $16. At first glance this might look like a fair valuation, but looking at the company historically might tell a different story.

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The 52-week range is $9.81 to $24.62, and shares closed Tuesday at $11.49. The $18 pricing for the buyout is roughly 57% higher than the previous close, but it is worth noting that this is also 27% below the 52-week high from March. Looking even further back, Volcano entered the market in 2006 and eventually rose to an all-time high in 2011 of $33.90.

Shares of Volcano were up over 55% to $17.83 in premarket trading, following the announcement of the deal.