Deal Creates Health Giant

Hologic Inc.’s $6.2 billion acquisition of Cytyc Corp. will combine two major players in women’s health care, assembling what the companies call the largest sales force in the U.S. devoted to pushing screening tools and medical devices for women’s health.

Hologic is paying stock and $2.2 billion in cash for Cytyc in the deal, announced yesterday.

Both Hologic and Cytyc have seen substantial success with specialized devices aimed at particular women’s health issues: Digital breast-cancer screening on Hologic’s part, and for Cytyc, treatment of excessive menstrual bleeding, known as menorrhagia, with minimally invasive surgery. Both devices supplant traditional techniques.

Executives of both companies say the tie-up will help sales representatives reach and win over obstetricians and gynecologists, who are critical to recommending that patients decide on screening or treatment methods that involve the companies’ products. Jack Cumming, Hologic’s chief executive, says the combined company will have 425 sales representatives in the U.S. dedicated to calling on OB/GYNs.

“The OB/GYN is the one person a woman listens to and takes advice from,” Mr. Cumming says.

Cytyc has at its core a dominant business in making Pap-smear tests for cervical cancer. The market is steady but far from booming, and the company faces the prospect of a slowdown because of research showing the tests aren’t needed as often as once thought. But Cytyc’s sales of devices — in particular the device used to treat menorrhagia — have soared. The company had revenue of $608 million in 2006, up 20% from a year earlier.

Hologic’s main source of revenue, and a fast-growing one, is digital mammography. Digital-mammography machines are several times more expensive than traditional film machines, but they are favored by doctors because they produce crisper images. Hologic had sales of $463 million in the year ending Sept. 30, 2006. Its stock has been a consistent climber, up sevenfold in the past five years.

Hologic is based in Bedford, Mass., about 15 miles from Cytyc in Marlborough, Mass. Mr. Cumming says the companies have long crossed paths, given their similar markets and physical proximity. Mr. Cumming and Patrick Sullivan, the Cytyc CEO, even live in the same town.

“In many regards, this combination has been a long time coming,” said Mr. Sullivan, who will become Hologic’s chairman. Mr. Cumming will continue as CEO.

By market capitalization, Hologic is the smaller company, but it is the acquirer. Hologic will pay 0.52 Hologic share, or the equivalent of $29.96 as of Friday’s closing price of $57.61 on the Nasdaq Stock Market, plus $16.50 in cash for each share of Cytyc. Hologic will borrow the $2.2 billion necessary to pay the cash portion of the acquisition. Overall, Hologic is paying $46.46 per share of Cytyc, a premium of 33% to Cytyc’s closing price Friday of $35.05 on the Nasdaq.

SOURCE: THE WALL STREET JOURNAL