In an unusual positive stock-market move on merger news, shares of Teleflex Inc rose more than $6 in morning trading after the Valley Forge medical-devices maker said it has agreed to pay $1 billion in cash, or $56 a share, for fast-growing Vascular Solutions Inc., which makes heart catheters and other cardiology devices.
Shares of Vascular, based in Minneapolis, also rose, hitting the highest level in its 20-year history. But Teleflex shares rose more, implying that investors see the sale price as a profitable bargain for the buyer. Teleflex is paying just a "narrow premium," and that's "exceedingly rare," Morgan Stanley analyst David Ryan Lewis told Teleflex management on a conference call.
"It's the right time to sell," Vascular CEO Howard Root said in a statement, because he's ready to retire after 20 years of running the company, including what he has called an exhausting legal defense against Justice Department accusations it sold medical devices for unapproved uses. Vascular and Root were vindicated of wrongdoing by a federal jury in February.
Soon after the deal was announced, a Wilmington law firm, Rigrodsky & Long PA, posted a notice that it is investigating "whether Vascular Solutions’ board of directors failed to adequately shop the Company and obtain the best possible value for Vascular Solutions shareholders before entering into an agreement with Teleflex."
Teleflex, with sales of $1.8 billion a year, said Vascular will boost profits with its rapid growth; Vascular sales are estimated at $160 million this year, up from $147 last year and $126 million the year before.
Analyst Lewis questioned if Vascular will keep growing so fast. Vascular has a "robust R&D pipeline" of "high growth products" that will complement Teleflex's own products, CEO Benson F. Smith said in the conference call. JPMorgan will help Teleflex finance the deal.
Teleflex shares traded after 1 p.m. at $152.70, up $6.67 for the day. But the stock still trailed its September alltime high of $188.35. Shares fell in October after the company announced a product recall and the planned closing of a North Carolina factory.
CEO Smith said the deal was the latest in a string of Teleflex acquisitions helping the onetime electrical-device supplier boost its profile as a diversified medical-device maker.