Lifecore Biomedical Inc. announced Tuesday that it has agreed to be sold to a New York private equity fund for $239 million in cash.

Warburg Pincus bid $17 a share for the Chaska-based biomaterials and medical device company, a premium of about 32 percent. The news sent shares of Lifecore, which had declined 27 percent in the past year, soaring -- closing at $16.76, up $3.92 a share.

Lifecore CEO Dennis Allingham said that the offer is highly attractive for shareholders and that the company itself will thrive as a private entity -- far from a volatile stock market hungry for short-term gains.

But the company left the door open for other suitors. In the deal's "go-shop" clause, Lifecore will solicit "superior proposals" from would-be bidders for the next 30 calendar days. Barring a better offer, the acquisition by Warburg will proceed and likely close by the end of the first quarter.

In a conference call with Wall Street analysts Tuesday, Allingham said Warburg is a good fit for his company.

With about $20 billion of assets currently under management, Warburg has invested $6.2 billion in health care-oriented companies, including $2.7 billion in those making medical devices. And the firm is no stranger to Minnesota medical technology companies, having invested in Minnetonka-based American Medical Systems Inc. and EV3 Inc. of Plymouth.

Lifecore operates two unique businesses, dental implants and hyaluronan, a surgical material primarily used in the ophthalmic, orthopedic and veterinary markets. The company employs about 240 people, 175 of them at a facility in Chaska. Allingham said employee levels will likely remain about the same in the deal.

The structure of the company, with two divisions and with $43 million in cash on its balance sheet, created a "hidden value," said CJS Securities analyst Arnie Ursaner, in a note to investors. "Even more importantly, the business had lumpy quarters and growth investments were being made where returns might be several quarters out before being realized. With these characteristics, it probably made more sense for the company to be private."

Allingham said in an interview that it was difficult to make long-term strategic decisions as a publicly traded company because the stock market is so volatile.

While private equity firms typically don't hold on to assets for long, Warburg says on its website that its "long-term investment horizon is consistent with the time required to develop and launch new medical devices." The firm's average investment period is five to nine years, its website states.

Lifecore also reported second-quarter results Tuesday. Net income for the quarter ended Dec. 31 was $1.2 million, or 9 cents per share, compared with $1.4 million, or 10 cents per share, in the same period last year. Wall Street had expected earnings of 11 cents a share.

Sales increased 4 percent to $17.3 million in the quarter.

Analyst Ursaner speculated that sales of the company's dental products may have suffered because of a slowing economy, since most cosmetic procedures are paid for privately and not by insurance companies.

Janet Moore • 612-673-7752

2nd quarter FY2008, 12/31

2008 2007 % chg. Revenue $17.3 $16.6 +4.5 Income 1.2 1.4 -9 Earn/share 0.09 0.10 -10 6 months

Revenue $33.0 $31.6 +4.5 Income 2.5 2.5 0 Earn/share 0.18 0.18 0 Figures in millions except for earnings per share.