Nanogen, Inc., developer of molecular and rapid in vitro diagnostic products, and The Elitech Group, a private French diagnostics company, announced a definitive agreement to combine the two companies. The combination will create a global provider of products to the molecular, point-of-care, clinical chemistry and microbiology diagnostics markets with expected first year revenues of more than $150 million and positive EBITDA. The transaction combines Nanogen’s technology leadership in molecular and point-of-care diagnostics with the strong revenue and profit base stemming from The Elitech Group’s global manufacturing, sales and distribution of IVD products for the clinical chemistry and microbiology markets. The board of directors of both companies unanimously approved the agreement to combine the two companies.
The combination is structured as a tax free stock for stock exchange of shares of Nanogen common stock for all of the Elitech capital stock and is a reverse acquisition of Nanogen by The Elitech Group. The combination is expected to create a transatlantic company that will continue to be listed on NASDAQ. The name of the combined company has not yet been determined.
“The combination with Elitech will accelerate the transition of Nanogen into a global, profitable diagnostics company with the critical mass needed to bring our leading molecular and point-of-care technologies to customers worldwide,” said Howard Birndorf, Nanogen’s chairman and CEO. “I believe the resulting combination will create value for our shareholders, customers and employees.”
“This is a true example of synergy between two companies in the in vitro diagnostics industry,” commented Pierre Debiais, President of Elitech. “We are delighted to be able to combine Nanogen’s technology strength with our market reach in the international marketplace and collectively deliver the critical mass required to address the US diagnostic market.”
Elitech shareholders are expected to receive shares of Nanogen common stock that have a value of €66.5 million. Under the terms of the share exchange agreement, the number of Nanogen common shares issued to Elitech shareholders is subject to a “collar”, which among other things, provides that Elitech shareholders will receive a minimum of 58.7% and a maximum of 68.7% of the total pro forma fully diluted shares outstanding upon completion of the merger subject to other limitations.
In conjunction with the share exchange agreements, Nanogen has also entered into interim funding agreements with Elitech and certain existing Nanogen investors pursuant to which they will loan Nanogen $8 million to fund Nanogen’s operations during the period between signing and closing of the combination. Nanogen will issue to these lenders senior secured convertible promissory notes that are convertible into shares of Nanogen common stock at the closing bid price of the Nanogen common stock immediately preceding the signing of the interim funding agreements. In connection with the interim funding agreements, Nanogen and existing investors also restructured Nanogen’s existing convertible notes.
For further information regarding the share exchange agreement, including the “collar” for the share exchange and the interim funding and the restructuring of the existing convertible notes, interested parties should refer to the Form 8-K filed by Nanogen on or about this date.
Board of Directors and Management
The combined company will be headquartered in San Diego under the leadership of Pierre Debiais as CEO. Michael Saunders, currently group vice president of marketing and business development for The Elitech Group will become COO, with a focus on European business and global commercial operations. David Ludvigson, currently president and COO for Nanogen, will become COO, with a focus on the United States business and global business and finance. Nick Venuto, currently vice president, CFO of Nanogen, will serve in the same capacity for the combined entity.
It is contemplated that the new board of directors will have a majority of Board members from or nominated by Elitech, including Mr. Debiais. Howard Birndorf, currently Chairman and CEO of Nanogen is expected to serve as Chairman of the combined entity.
The combined company will be a global provider of products in the molecular, point-of-care, clinical chemistry and microbiology diagnostics market. The combined company will benefit from cost synergies and enhanced opportunities for revenue growth and increased profitability. The pro forma combined business is currently growing at more than 20% annually and in calendar year 2009 is expected to generate total revenues of more than $150 million, have an EBITDA margin of approximately10% of revenue and be cash flow positive. The merged company’s EBITDA and profitability will also benefit from significant operational synergies including cost reductions in sales, marketing, manufacturing and development as well as gross margin improvements through optimization of distribution channels and enhanced opportunities for revenue growth. Nanogen expects the combination to be substantially accretive to calendar year 2009 GAAP earnings per share, excluding one-time, transaction related adjustments and costs.
Approvals and Time to Close
The share exchange agreement is subject to approval by Nanogen’s stockholders as well as customary closing conditions and regulatory approvals. The transaction is expected to close by the end first quarter of 2009.
Cowen and Company, LLC is serving as financial advisor to Nanogen and Morgan, Lewis & Bockius LLP as legal counsel.
BNP served as financial advisor to the Elitech Group and Jackson Walker LLP as legal counsel.
Nanogen will hold a conference call and webcast today at 4:30 PM Eastern Time to discuss this transaction. Interested parties are invited to join this conference by dialing 866.362.5158 in the U.S. and 617.597.5397 outside the U.S., and entering the code 66510183, or by going to Nanogen’s website at www.nanogen.com and clicking on Investor Relations. A replay of the conference call will be available for two weeks by dialing 888-286-8010 in the U.S. and 617-801-6888 outside the U.S., and entering the code 72452328.