March 12, 2012 / 7:58 AM / 5 years ago

Japan's Asahi Kasei to buy Zoll of U.S. for $2.2 billion

TOKYO (Reuters) - Japan's Asahi Kasei Corp will buy U.S. medical equipment maker Zoll Medical Corp for $2.21 billion as it looks to build a global healthcare business and reduce reliance on its chemicals and fibers operations.

Asahi Kasei, which is seeking to expand its presence in the United States, will buy Zoll in an agreed cash deal for $93 a share, a 24 percent premium to Zoll's closing price on Friday, the companies said in a joint statement on Monday. The deal is Asahi Kasei's biggest acquisition by far.

Zoll shares were up 23.64 percent at $92.86 in early trading.

" I think the probability of another bidder coming in is fairly low," said Deepak Chaulagai, an analyst at Dougherty & Co. While it would not be impossible for a company such as St. Jude Medical Inc to come in, it is unlikely, he said.

"This is a good deal," he said, "Asahi will let Zoll run as a wholly owned subsidiary, so from that perspective it looks like a win-win for both companies."

The transaction, which adds to about $200 billion that Japanese firms have spent on overseas acquisitions in the past four years, is expected to close in the second quarter, the companies said. Asahi Kasei said it will finance the deal with loans.

Asahi Kasei derives more than half its sales from its chemicals and fibers businesses and almost a third from homes and construction materials. Combined, those businesses generate close to 90 percent of operating income.

Healthcare makes up just 7 percent of sales and 8 percent of operating income, but President Taketsugu Fujiwara said the 80-year-old company had identified the sector as a growth area.

"This transaction will allow us to build on Zoll's strong U.S. business position and technology leadership, with Zoll forming the cornerstone of our critical care business," he said.

Zoll, a maker of resuscitation and critical care devices, said in November it derives a fifth of its revenue from a wearable defibrillator, which does not need to be implanted but can be used temporarily while a person perhaps changes their life-style habits.

Asahi Kasei signed an agreement last July with Zoll to market and distribute the wearable defibrillator in Japan.

"Another great U.S. company gone overseas," said Steven Demas, a portfolio manager who helps manage $25 million for the Archer Funds, which owns shares in Zoll and agrees the price "seems fair."

"Zoll is the only company with this kind of external defibrillator and we think it's a business that is going to have more demand," he said.

Zoll shares, selling for a little more than $11 in 2009, hit a record high of $76.22 late last month, up more than 64 percent from a year earlier. In January the company reported first-quarter earnings per share of 29 cents, 3 cents above expectations, on revenue of more than $133 million.

HEALTHCARE BUSINESS

Japanese companies have become increasingly acquisitive overseas in recent years as the domestic market has shrunk and a rising yen has provided more financial firepower. The yen rose to a record high of 75.31 per dollar in October, up 47 percent from the end of 2007.

The $200 billion spent on by Japanese companies on overseas acquisitions over the past four years is more than double the amount spent in the previous four-year period.

In May last year, Japan's largest drugmaker, Takeda Pharmaceutical, agreed to buy privately held Swiss firm Nycomed for 9.6 billion euros ($12.5 billion), the biggest overseas acquisition by a Japanese company since a $19 billion tobacco industry deal in 2007.

The $2.2 billion takeover of Zoll dwarfs Asahi Kasei's previous biggest deal, which was for about 10 billion yen ($122 million), a spokesman said.

Asahi Kasei plans to boost healthcare net sales by over 60 percent by its financial year 2015 from 2010, and operating income by 18 percent, it said in a presentation this month at an investment conference.

It described ageing as a "megatrend" that would lead to emerging demand for healthcare.

Last year, Asahi Kasei earmarked 450 billion yen for mergers and acquisitions and investments in new growth areas, saying medical would be one of its main targets. The company had 115 billion yen in cash and deposits at the end of December.

If Asahi Kasei's growth plans are successful, the company aims to increase the proportion of operating income from healthcare to 13 percent by its 2015 financial year, from 6 percent in 2010, the biggest boost among its businesses.

It sees the share of operating income from chemicals and fibers and homes and construction materials falling over that period, the presentation showed.

Shares in Asahi Kasei closed on Monday at 518 yen, up from 517 on Friday. They have risen 11.6 percent this year, underperforming the benchmark Nikkei, which is up almost 17 percent.

Asahi Kasei is being advised in the deal by UBS Investment Bank and Zoll by Brown Brothers Harriman.

($1=1.3 euros, 82 yen)

Additional reporting by Miki Kayaoka and Nathan Layne, and by Toni Clarke in Boston; Writing by Neil Fullick; Editing by Ian Geoghegan and John Wallace

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