BSD Medical Settles Merger Suit - Analyst Blog

Cancer treatment systems maker BSD Medical Corp. (BSDM) has reportedly reached a settlement with shareholders, who filed a lawsuit to block its proposed merger with Utah-based medical product maker Merit MedicalSystems Inc. (MMSI).

Merit Medical agreed to acquire Massachusetts-based BSD Medical on May 13, 2010, for roughly $96 million in cash. The offer (valued at $4.38 per BSDM shares) represented a 54% premium over BSD Medical’s closing price of $2.84 on May 12. BSD Medical’s shares spiked 50% following the announcement of the merger.

The transaction, which has been already approved by the Boards of both companies, is subject to closing conditions (including the approval of BSD Medical shareholders and antitrust clearance) and is slated for completion in third-quarter 2010.

However, some BSD Medical shareholders filed a class-action suit in June 2010 in the Delaware Chancery Court for an injunction against the merger. The shareholders accused the directors of BSD Medical for breaching their fiduciary duties in connection with the proposed deal by failing to maximize shareholder value and obtain the best financial and other terms.

Subsequently, the shareholders amended the lawsuit in mid-July 2010 by adding BSD Medical as a defendant. They also indicted that the company’s regulatory filing failed to disclose adequate information about the merger, and instead, provided misleading information.

In a recent filing with the Securities & Exchange Commission (SEC), BSD Medical stated that the settlement, which is subject to court approval, would dismiss all the claims in the class-action suit. The final hearing on the settlement is due on Nov 4, 2010.

BSD Medical focuses on development and marketing of products for embolotherapeutic procedures (minimally invasive surgeries for preventing/reducing blood loss), mainly performed by interventional radiologists. The merger, if consummated, will enable the combined entity to leverage a technology platform, which can be applied to multiple therapeutic areas representing a significant market opportunity.

Besides, it will expand point-of-sale offerings for interventional radiology, targeting the uterine fibroid (tumors of the uterus) and primary liver cancer markets. These are the two major application areas of embolotherapy, which cumulatively represent a global market of over $1 billion.

Merit Medical expects acquisition-related costs (such as transaction fees and restructuring costs) to be dilutive to its earnings in calendar year 2010, but accretive in 2011 and beyond. Besides, it anticipates cost synergies through reduction of sales, marketing and administrative expenses.