Zoll Acquired in $2.2 Billion Deal

Irasshai, Zoll Medical Corp.

Employees and executives of the Chelmsford, Mass.-based device manufacturer might hear that phrase (meaning Welcome!) much more frequently in the next few weeks as their prospective new owner familiarizes itself with both the company and its potential to boost worldwide healthcare revenue. Zoll’s new owner—diversified chemical maker Asahi Kasei Corp. of —is prepared to pay handsomely for that potential, having offered the 32-year-old firm $2.2 billion for acquisition rights. The purchase price of $93 per share is 24 percent higher than Zoll’s closing price of $75.10 on March 9.

Announced on March 13, the Asahi’s deal for Zoll is the year’s first big blockbuster purchase, but the second in three months involving a Japanese company. In mid-December, Tokyo-based Fujifilm Holdings Corp. shelled out $995 million for SonoSite Inc., a portable ultrasound and cardiograph device manufacturer headquartered in Bothell, Wash. Fujifilm had considered partnering with Olympus Corp., the world’s largest endoscope manufacturer, but the company’s role in a $1.7 billion accounting fraud scheme may have influenced the fate of the deal (Fujufilm apparently chose wisely: Law enforcement officials arrested seven people last month, including a former Olympus chairman and executive vice president, on charges they violated Japan’s Financial Instruments and Exchange Act. Each suspect faces a maximum 10-year prison term upon conviction). Electronics giant Sony Corp. reportedly is considering investing in Olympus now, though no formal agreement has yet been reached.

While interest and investment in the BRIC markets—Brazil, Russia, India and China—seem to be at an all-time high, Western companies nevertheless remain appealing, as evidenced by the recent spate of investments in North American companies. Some of the more notable deals include the $587 million purchase of Aliso Viejo, Calif.-based Clarient Inc. in 2010 by GE Healthcare (headquartered in London, United Kingdom); the $2.6 billion acquisition of Plymouth, Minn.-based ev3 Inc. by Irish medical device manufacturer Covidien plc (another 2010 procurement); and last year’s deal between Smith & Nephew plc of London and privately-held Calgary, Alberta-based TENET Medical Engineering Inc., a developer of intuitive positioning control technology and fully integrated systems used in arthroscopic surgery. With Fujifilm and Asahi now joining this parade of foreign patrons, analysts say Japan may finally be looking elsewhere for high-growth opportunities. “It has been quite a while since Japanese companies were active acquirers of U.S. businesses, but many Japanese companies are now looking at healthcare as a future growth market,” financial analyst, investor and consultant Stephen Simpson wrote in a brief analysis of the Zoll-Asahi merger for Seeking Alpha, a website for stock market opinion and analysis. “Fujifilm and Asahi Kasei may only be the first in a long line of companies to look to build or enhance healthcare franchises around quality U.S. names. Should that prove to be the case, the next few years could be even more interesting for those smaller growth names.”

Simpson called the Zoll acquisition a “pretty strong deal” for the company. The price offered by Asahi Kasei is 26 percent higher than Zoll’s average closing price over 20 days through March 9, and lower than the 53 percent average premium for 19 similar-sized acquisitions of healthcare product firms during the past five years, according to Bloomberg data. Zoll’s net income soared 65 percent to $31 million for the year ended Oct. 2, 2011. Annual sales have grown an average of 16 percent for the last decade, Asahi executives claim.

Founded in 1980 by three people, including heart doctor Paul M. Zoll, the company manufactures and sells devices used in ambulances and hospitals to revive patients whose hearts have stopped. Its removable defibrillator vest, used for patients at risk of cardiac arrest, generated $111 million in sales in fiscal 2011, Asahi Kasei President Taketsugu Fujiwara said, noting that the company’s devices expand the kinds of products sold by Asahi Kasei in both the United States and high-growth Asian markets. “We are very excited to be joining forces with Zoll, with whom we have enjoyed a productive partnership over the past nine months. In the medical devices business, the U.S. market leads the world, not only in size and scope, but also in technological innovation, so establishing a strong infrastructure in the U.S. is an important step for Asahi Kasei. This transaction will allow us to build on Zoll’s strong U.S. business position and its technology leadership, with Zoll forming the cornerstone of our critical care business,” he said in a news release. “We look forward to working with the management and all the employees of ZOLL to develop a critical care business renowned worldwide for its ability to turn technological advances into sophisticated medical tools that save lives and deliver invaluable improvements in the quality of life of patients and their families.”

Zoll CEO Richard Packer said he does not expect the deal to trigger a restructuring, management changes or layoffs. “Asahi Kasei needs all that Zoll has,” Packer wrote in a letter to employees. “No part of Zoll or person in Zoll is redundant to what Asahi Kasei already has. This fact means there will be minimum change or disruption.”

The acquisition, analysts claim, would accelerate Asahi Kasei’s plan to triple its healthcare business to 500 billion yen ($6.1 billion) by 2020. The global critical care market is estimated at $48 billion and growing at 7 percent annually. Asahi Kasei partnered with Zoll last August to sell its automated external defibrillator in Japan; that partnership led to the acquisition, though analysts claim there may still be time for another suitor to woo Zoll because the proposed purchase price does not include its temperature management system used after strokes and heart attacks.

“There is a chance, albeit a slight one, that someone else could emerge over the next several weeks,” Jonathan Block, a New York, N.Y.-based analyst at SunTrust Robinson Humphrey Inc., told Bloomberg. “It would have to be fast. This deal is set to close in the second quarter, which doesn’t leave a whole lot of time.”

UBS Investment Bank is advising Asahi Kasei and Brown Brothers Harriman is an advisor to Zoll. Cleary Gottlieb Steen & Hamilton LLP is the legal counsel of Asahi Kasei and Goodwin Procter LLP is Zoll’s legal advisor.