PACS and RIS provider Merge eFilm lived up to its name today, signing an agreement to merge with Canadian imaging software developer Cedara Software in a stock swap valued at $393.4 million.
The deal will create a company with a diverse product portfolio aiming to meet the needs of both OEMs and end users, according to Merge eFilm president and CEO Richard Linden.
"We are unique in our belief in the product innovation synergies between OEM medical imaging innovation and the speed to market with full RIS/PACS workflow solutions," he said. "Together we can accelerate our ability to enter new medical imaging markets and clinical specialties, and we will continue to be a catalyst for changing the definition of RIS/PACS to be clinical and business medical imaging workflow solutions for radiology and beyond radiology into clinical specialties."
The merger also brings added financial strength, enhanced international presence, and broader product breadth and depth, he said. Linden spoke during a conference call today to discuss the deal.
The combination should also create an attractive opportunity for OEM clients, said Cedara president and CEO Abe Schwartz.
"Our customers today are better off because they can deal with a much stronger company, and they can get more product in a one-stop-shop kind of environment," he said.
The vendor will continue its dual product development and distribution strategy by developing medical imaging products in partnership with its OEM customers, and then incorporating those products into integrated workflow offerings for its end-user clients, Linden said.
"This model will drive our organizational structure and our go-to-market strategy," he said. "The combination of Merge eFilm and Cedara Software enhances our international presence, given the strength of Cedara in Europe and Asia, and doubles the number of end-user-solution customers we have in the U.S. to over 500 installations of RIS, PACS, and RIS/PACS solutions."
The deal will also help the company expand into clinical specialties such as mammography, cardiology, and orthopedics, Linden said. In addition, the company hopes to take advantage of cross-selling and add-on sales opportunities for Cedara's clinical specialty applications into Merge eFilm's customer base, as well as cross-selling of Merge eFilm's RIS product line into Cedara's and eMed Technologies' PACS installed base.
The companies expect to complete their integration plans before the deal is closed, Linden said.
"It would be likely to conclude that we would consolidate the combined company's OEM international operations under a single leadership structure, and combine the combined company's direct strategy under a single leadership structure," he said. "We don't believe there's any distribution overlap."
In the last few years, Merge has aggressively expanded beyond its roots as a supplier of connectivity products and services, acquiring imaging workstation software developer eFilm Medical in 2002 and RIS vendor RIS Logic in 2003. Late last year, the vendor also announced an agreement to purchase advanced visualization software developer AccuImage Diagnostics.
Cedara fell on hard times in the early part of the decade, reporting losses in fiscal 2001, 2002, and 2003, but the firm has experienced a financial turnaround recently. The Mississauga, Ontario-based company posted strong revenue growth and a return to profitability in fiscal 2004, and its stock resumed trading on the Nasdaq stock exchange in September. The company also reported record revenues and earnings in its 2005 fiscal first quarter (end-September 30).
In addition, Cedara completed its acquisition of PACS and teleradiology provider eMed Technologies in October, a move aimed at spurring growth by gaining direct access to the end-user market. There is some product overlap between Cedara and Merge eFilm in the PACS space, but the combined company will support purchased products and provide a roadmap to customers for future enhancements, Linden said.
"It's a bit premature at this stage to talk more specifically about any type of product integration plans," he said.
The combined firm will have an annual revenue run rate exceeding $100 million, and Merge eFilm expects the transaction will be accretive to earnings per share in 2005, excluding the impact of one-time transaction-related expenses.
The vendor will be based in Milwaukee. Richard Linden will remain in his post, while Cedara president and CEO Abe Schwartz will join the firm's board of directors. Merge eFilm and Cedara expect the deal to close in late April or early May, subject to each company's shareholder approval, regulatory approvals, and other customary closing conditions.
Merge eFilm will issue either 0.587 common shares, or 0.587 shares of a newly created class of Canadian exchangeable shares, for each Cedara common share. Based on the 20-day volume-weighted average price of Merge eFilm stock for the period ending January 14, 2005, the transaction is valued at $12.37 (approximately $15.10 Canadian) for each Cedara common share. That represents a 17.5% premium to Cedara's 20-day volume-weighted average price.
Cedara shareholders will own approximately 58% of the new company, said Cedara CFO Brian Pedlar. The merger may permit Canadian shareholders of Cedara to defer any gain on their shares for Canadian income tax purposes, the company said.
By Erik L. Ridley
AuntMinnie.com staff writer
January 18, 2005
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