Medical device maker EV3 Inc. of Plymouth said Tuesday it has agreed to be purchased by Covidien, an Irish health care products company, in a $2.6 billion deal that is one of the largest involving a Minnesota company in recent years.
Covidien will pay $22.50 a share in cash, a 19 percent premium over EV3's closing stock price last Friday of $18.92. Richard Meelia, Covidien's chairman and CEO, said the acquisition would significantly expand his company's presence in the vascular market. EV3 has products for blood vessels surrounding the spine and brain in the neurovascular side of its business, an area that Covidien has not ventured in before. Covidien said it believes EV3 will help accelerate the company's sales growth and improve shareholder value in the long term.
"We believe we've done the right thing by our shareholders," said EV3 spokeswoman Julie Tracy, adding that the company believes the valuation was the highest price obtainable.
EV3's stock price closed at $22.22 on the Nasdaq on Tuesday, up $3.30 a share. A year ago, the stock had reached lows of $8.75 a share. EV3 went public in June 2005 at $14 a share, raising about $165 million in one of Minnesota's largest public offerings. It posted net 2009 income of $41.9 million on sales of $449 million.
For the quarter ended April 4, EV3 earned nearly $9.9 million in net income, up from a net loss of $1.8 million a year ago. Net sales for the company increased 23 percent to $123.9 million compared with a year ago.
Analysts give deal thumbs up
Analysts applauded the sale, saying EV3's product mix will complement the Covidien line, which includes products in the medical device, pharmaceuticals and medical supplies categories.
"I think Covidien is getting a great company and great future products opportunities," said Charles Haff, senior equity analyst at Dougherty & Co. "This obviously gives them a big step into the vascular space."
Haff said EV3 has done better than its competitors due to its products and operational execution. Haff said he estimates the growth of EV3's neurovascular business will be above 15 percent for the next three years.
Joshua Jennings, an analyst with Jefferies & Co., said he believes EV3's neurovascular operations are "almost entirely complementary" to Covidien's vascular portfolio.
"We believe the Covidien-EV3 merger makes sense for both parties," Jennings wrote in a note to investors.
Covidien said the purchase will bring long-term growth opportunities in emerging markets such as Brazil, Russia, India and China, as well as developed regions. About 40 percent of EV3's business is outside of the United States, Covidien said.
Covidien said it plans to keep EV3's Plymouth facility operating. Meelia said the "salespeople will not be touched and the senior operating team, for sure, we absolutely want to keep."
Meelia said over time the company may be interested in other opportunities that could fold into the business, but "there's absolutely no plan whatsoever to move anything out of Minnesota."
Covidien's purchase of EV3 could trigger "change of control" provisions in the employment agreements of EV3's top executives. President and CEO Robert Palmisano, Chief Financial Officer Shawn McCormick and Chief Operating Officer Pascal Girin could receive as much as $13.1 million, $2.6 million and $5.4 million respectively, according the company's most recent proxy statement.
Staff writer Patrick Kennedy contributed to this report. Wendy Lee • 612-673-1712