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ESC Medical purchases Coherent’s medical lasers
Coherent’s medical products will sell to ESC Medical Systems for $203 million. ESC will change its name to Lumenis.
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SANTA CLARA, Calif. — Coherent has signed an agreement with ESC Medical Systems to sell its medical products division, Coherent Medical Group, for approximately $203 million, plus an earnout of up to $25 million and ownership of ESC stock.
Following closing of the transaction and subject to shareholder approval, ESC will change its name to Lumenis, derived from lumen, Latin for light.
In consideration for the sale, Coherent will receive $100 million in cash; 5.4 million shares of ESC common stock, which represent approximately 16.5% of the ESC shares outstanding following the transaction; $12.9 million in an 18-month, 5% subordinated promissory note; and an additional $25 million based on future performance.
ESC develops, manufactures and markets medical devices. The devices use proprietary intense pulsed light and laser technologies. ESC systems are used in aesthetic, surgical and medical applications, including the non-invasive treatment of leg veins and other vascular lesions, pigmented lesions, hair removal, skin rejuvenation and photorejuvenation, as well as dental; ear, nose and throat; obstetric/gynecologic and neurosurgery procedures.
Coherent develops lasers and laser-based solutions for medical, scientific and commercial applications.
Coherent manufactures the Aura capsulotomy laser and Opal photoactivator for photodynamic therapy of AMD. ESC, while a surgical manufacturer, has no devices in the ophthalmic market.
Until this agreement with ESC, Coherent was focused on two principal market segments: the electro-optical marketplace and the medical market.
In the electro-optical marketplace, which prior to the agreement represented nearly two-thirds of the company’s business, Coherent products target a range of commercial applications that include semiconductor and printed circuit board manufacturing, micromachining, reprographics, imaging, spectroscopy, forensics, information storage and multimedia entertainment.
The company also serves an array of scientific applications that include engineering, biology, chemistry, physics, viral research and genetics.
A win-win deal
ESC announced that the combined sales for the two businesses in 2000 were approximately $360 million. Aesthetics brought in approximately $180 million, ophthalmic approximately $70 million, surgical approximately $60 million and service approximately $50 million. On a pro forma basis, ESC estimates that the transaction would be more than $0.60 accretive to cash EPS in 2001.
Robert Quillinan, Coherent executive vice president and CFO, said in an interview that the Coherent and ESC deal was really a win-win for both companies.
From Coherent’s point of view, while they have sold off a significant section of their business, they do in turn receive $100 million and own 16.5% of the ESC stock. As Mr. Quillinan explained it, should ESC, now Lumenis, really take off, Coherent is a majority shareholder in a very good company; if Lumenis and the medical laser industry falters, Coherent has left the industry and still made at least $100 million.
Mr. Quillinan said that Coherent had always been difficult for its shareholders to understand, principally because it was so multifaceted, with development in medical lasers, semiconductors and telecommunications.
The company’s management decided that Coherent had to either consolidate itself or consolidate several other businesses to simplify its assets. In this case, Coherent consolidated itself and sold off its medical laser division.
Corporate combination
Bernard Couillaud, Coherent’s president and CEO, will be appointed to ESC’s board of directors. In addition, following the closing, Coherent will continue to supply parts and components and provide, on a transitional basis, ongoing operational support.
Yacha Sutton will continue as Lumenis CEO, Louis Scafuri will remain COO, and Sagi Genger will continue as CFO. Jim Taylor, president of Coherent Medical Group, and Robert Grove, president of Coherent Star, will continue to have a role in the combined company.
ESC has commitments from two Israeli banks to finance the transaction. ESC will be provided with up to $242 million in financing, in the form of a $100 million 6-year term loan to fund the cash portion of the transaction, a $50 million revolver to fund ongoing working capital needs, and draw-down rights of up to $92 million to refinance the outstanding subordinated convertible notes upon maturity. The draw-down rights are subject to operational and indebtedness milestones.
Integration teams are being created to capture best practices of both organizations to maximize customer benefits and achieve synergy. These teams will be working during the 60-day post-signing transitional period under the leadership of Mr. Scafuri and will be composed of key managers from both organizations.
Consummation of the transaction is subject to customary conditions, including approval from regulatory authorities.
Coherent announced in March that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the agreement to sell its operations expired on March 2. Both companies expect to close promptly following receipt of the financing and the satisfaction of other customary conditions.
For Your Information:
- Robert Quillinan can be reached at Coherent, 5100 Patrick Henry Dr., P.O. Box 54980, Santa Clara, CA 95056-0980; (408) 764-4168; Web site: www.coherentinc.com.
- ESC Medical Systems can be reached at Yokneam Industrial Park, P.O. Box 240, Yokneam 20692, Israel; (972) 4-959-9000; fax: (972) 4-959-9050; e-mail: info@escmed.com; Web site: www.escmed.com.