ICU Medical and Pfizer announced that they have entered into a definitive agreement

OREANDA-NEWS. ICU Medical Inc. (link is external) (NASDAQ:ICUI(link is external)) and Pfizer Inc.(link is external) (NYSE:PFE(link is external)) today announced that they have entered into a definitive agreement under which ICU Medical will acquire all of Pfizer’s global infusion therapy business, Hospira Infusion Systems (HIS), for $1 billion in cash and stock. The Hospira Infusion Systems business includes IV pumps, solutions, and devices that, when combined with ICU Medical’s existing businesses, will create a leading pure-play infusion therapy company, with estimated pro forma combined revenues of approximately $1.45 billion based on trailing twelve month results as of June 2016.

Under the terms of the agreement, Pfizer will receive approximately $400 million in newly issued shares of ICU Medical common stock and $600 million in cash from ICU Medical subject to customary adjustment for net working capital. Upon completion of the transaction, which the companies expect to occur in the first quarter of 2017 subject to customary closing conditions including required regulatory approvals, Pfizer will own approximately 16.6 percent of ICU Medical.  In addition, so long as Pfizer continues to hold 10% or more of ICU Medical’s common equity, it will have the right to nominate one director to the company’s board of directors in ICU Medical’s proxy materials, and Pfizer has agreed to certain restrictions on transfer of its shares for at least 18 months.

John Young, Group President of Pfizer Essential Health commented, “We are pleased that Hospira Infusion Systems is combining with ICU Medical, and we believe the combined company will be well positioned in the marketplace to deliver value to customers through its strong product portfolio and the expertise of colleagues from both companies. I’m proud of the Hospira Infusion Systems team and their positive impact on patients around the world.”

The acquisition complements ICU Medical’s existing business by creating a company that has a complete IV therapy product portfolio from solutions to pumps to non-dedicated infusion sets, and gives the company a significantly enhanced global footprint and a platform for continued competitiveness and growth. With an integrated product offering, ICU Medical will hold industry-leading positions in key segments and have access to the full US infusion marketplace with a compelling product portfolio.

“The combination of these two businesses is the natural evolution of a productive relationship that began more than 20 years ago when Hospira began integrating ICU Medical’s needlefree technology into their infusion offering globally,” explained Vivek Jain, ICU Medical’s Chief Executive Officer. “By acquiring the Hospira Infusion Systems business, currently our largest single customer, we create a pure-play infusion business with the focus and scale to compete globally, eliminate our single customer concentration issue, and have a significant value creation opportunity as a much larger company. We look forward to serving more customers as we continue to bring clinical and economic value to the marketplace.”

ICU Medical’s financial advisors for the transaction were Barclays and Wells Fargo Securities, LLC, and Latham & Watkins acted as its legal advisor. Goldman, Sachs & Co. and Guggenheim Securities served as Pfizer’s financial advisors for the transaction, while Skadden, Arps, Slate, Meagher & Flom LLP and Ropes & Gray LLP served as its legal advisors. 

ICU Medical Q3 Preliminary Results and Fiscal Year 2016 Guidance Update

For the third quarter of 2016, ICU Medical expects to report quarterly revenue of approximately $96 million and adjusted EBITDA of approximately $33.5 million, and $1.20 adjusted earnings per share. For the year, ICU Medical expects to report results slightly above the high-end of its previously announced guidance of $370 million revenue, $131 million adjusted EBITDA, and $4.60 adjusted diluted earnings per share. See reconciliation of GAAP to non-GAAP financial measures (unaudited) below.

About ICU Medical, Inc.: ICU Medical, Inc. develops, manufactures and sells innovative medical devices used in vascular therapy, oncology and critical care applications. ICU Medical’s products improve patient outcomes by helping prevent bloodstream infections and protecting healthcare workers from exposure to infectious diseases or hazardous drugs. The company’s complete product line includes custom IV systems, closed delivery systems for hazardous drugs, needlefree IV connectors, catheters and cardiac monitoring systems. ICU Medical is headquartered in San Clemente, California. 

About Pfizer: Working together for a healthier world^® At Pfizer, we apply science and our global resources to bring therapies to people that extend and significantly improve their lives. We strive to set the standard for quality, safety and value in the discovery, development and manufacture of health care products. Our global portfolio includes medicines and vaccines as well as many of the world's best-known consumer health care products. Every day, Pfizer colleagues work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. Consistent with our responsibility as one of the world's premier innovative biopharmaceutical companies, we collaborate with health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world. For more than 150 years, Pfizer has worked to make a difference for all who rely on us.

Adjusted EBITDA excludes the following items:

Intangible asset amortization expense:  We do not acquire businesses or capitalize certain patent costs on a predictable cycle.  The amount of purchase price allocated to intangible assets and the term of amortization can vary significantly and are unique to each acquisition.  Capitalized patent costs can vary significantly based on our current level of development activities.  We believe that excluding amortization of intangible assets provides the users of our financial statements with a consistent basis for comparison across accounting periods.

Depreciation expense:  We exclude depreciation expense in deriving adjusted EBITDA because companies utilize productive assets of different ages and the depreciable lives can vary significantly resulting in considerable variability in depreciation expense among companies.

Stock compensation expense:  Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years.  The value of stock options is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control.  The value of our restricted stock awards is determined using the grant date stock price, which may not be indicative of our operational performance over the expense period.  Additionally, in order to establish the fair value of performance-based stock awards, which are currently an element of our ongoing stock-based compensation, we are required to apply judgment to estimate the probability of the extent to which performance objectives will be achieved.  Based on the above factors, we believe it is useful to exclude stock-based compensation in order to better understand our operating performance.

Restructuring and strategic transaction:  We incur restructuring and strategic transaction charges that result from events, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our ongoing business.  Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our ongoing operations with prior and future periods.

 Adjusted Diluted EPS excludes, net of tax, intangible asset amortization expense, stock compensation expense, restructuring and strategic transaction, legal settlement and bargain purchase gain, which was tax free.  We apply our GAAP consolidated effective tax rate to our non-GAAP financial measures, other than when the underlying item has a materially different tax treatment.

From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.

The following tables reconcile our expected GAAP and non-GAAP financial measures:

ICU MEDICAL, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share data)
		"Expected"
		Adjusted EBITDA
		Three months ended September 30, 2016
GAAP net income		$	17,501
Non-GAAP adjustments:
Stock compensation expense			3,824
Depreciation and amortization expense			4,863
Restructuring and strategic transaction expense			520
Provision for income taxes			6,793
Total non-GAAP adjustments			16,000
Adjusted EBITDA		$	33,500
		Adjusted diluted earnings per share
		Three months ended September 30, 2016
GAAP diluted earnings per share		$	1.01
Non-GAAP adjustments:
Stock compensation expense		$	0.22
Amortization expense		$	0.04
Restructuring and strategic transaction expense		$	0.03
Estimated income tax impact from adjustments		$	(0.11	)
Adjusted diluted earnings per share		$	1.20