Medical plastics processor Urohealth Systems Inc. apparently has won a bidding war for Imagyn Medical Inc., offering $58.5 million and turning back an offer from United States Surgical Corp.
The deal, announced July 18, is expected to give Urohealth a strong platform in the gynecological market and help Imagyn overcome distribution problems. The companies hope to get shareholder approval in August.
The merger comes as Newport Beach, Calif.-based Urohealth faces a class-action lawsuit filed in early July that accuses it of making ``materially false and misleading'' statements about its financial conditions to bolster its stock price. The suit charges that the company inflated its stock price to more than $15 a share in August, allowing one ``insider'' to make $10 million, but saw that drop to $4.75 when it restated earnings.
A Urohealth spokesman disputed the charges and said such suits are expected when stock prices decline.
Those declining stock prices were lowering the value of an earlier offer for Imagyn, an April stock swap that would have paid about $70 million, according to Urohealth spokesman David Pyrce.
But Urohealth's stock fell, and the offer dropped about 50 percent in value.
That prompted U.S. Surgical to make its $57.5 million cash or stock offer July 15, which Urohealth beat with a $58.5 million bid.
Imagyn's board decided unanimously to go with Urohealth's offer because detailed corporate reviews already had been completed, while U.S. Surgical's offer still needed that kind of examination, said J.C. Mac Rae, Imagyn's chief financial officer.
``We studied the U.S. Surgical proposal long and hard,'' Mac Rae said. ``It was a very valid offer.''
A spokesman for Norwalk, Conn.-based U.S. Surgical said the company will not make another offer.
Imagyn had about $9 million in sales last year, but that fell to $820,000 last quarter as it geared up new production.
The company also has about $40 million in capital from a public offering.
Pyrce said the $58.5 million price tag is fair because Imagyn is developing technology in a growth market: minimally invasive gynecological surgery. Imagyn's public offering last year valued it at $140 million.
Laguna Niguel, Calif.-based Imagyn has a 30,000-square-foot factory but contracts out most of its plastic processing, Mac Rae said.
Urohealth wants to do some of that work at its Costa Mesa, Calif., plant, Pyrce said.
Imagyn faced hurdles in developing distribution channels, Mac Rae said.
``We have embarked on plans to develop U.S. distribution, but that has been hard,'' Mac Rae said.
``It's tough for any small company'' to get an audience with large purchasing alliances that Urohealth has access to, he said.