I found an interesting article with reference to AVEI and its stock price and possible future earnings. Maybe this article explains the last months stock decline.
Article courtesy of Dow Jones:
Bidding For Pfizer Unit Pressures Shares Of Potential Buyers
MAY 29,1998
NEW YORK -(Dow Jones)- The bidding for Pfizer Inc.'s
interventional-cardiology device unit Schneider Worldwide is putting pressure
on the shares of some of the companies believed to be vying for it, market
sources said Friday.
Since the first of the month, shares of Boston Scientific Corp. (BSX) and
Arterial Vascular Engineering Inc. (AVEI), which sources identify as finalists
in the bidding, have slid on fears that the acquisition would cause short-term
dilution for the successful acquirer. Boston Scientific, which closed Friday at
$63.75, fell 12% in May, while Arterial Vascular, at $30.9375, was down about
15%.
Baxter International Inc. (BAX) is rumored to be a dark-horse bidder, while
other possible, but less likely, candidates include Medtronic Inc. (MDT) and
Johnson & Johnson (JNJ).
A Pfizer spokesman declined to comment on the status of Schneider, saying
only that the company is still reviewing its options for the subsidiary. A
Boston Scientific spokeswoman said the company doesn't comment on market
rumors. Arterial Vascular officials weren't available for comment.
Pfizer announced in February that it was exploring strategic options for its
medical-technology group, including the possible sale of all or part of it. The
group consists of Schneider; Howmedica, an orthopedics business; and American
Medical Systems, which makes urological implants for patients suffering from
erectile dysfunction and urinary incontinence.
In January, the New York pharmaceutical giant sold its Valleylab unit, which
makes electrosurgical and ultrasonic products, to U.S. Surgical Corp. (USS) for
$425 million.
Pfizer is seeking about $2 billion for Schneider, market sources said. They
estimate that bids have ranged from $1 billion to $2 billion.
A pooling-of-interests acquisition of Schneider wouldn't be possible because
such transactions can't involve corporate subsidiaries. Thus, any interested
company would have to be prepared to complete a cash or stock purchase, which
could result in significant goodwill amortization and therefore dilute
earnings.
Arterial Vascular, in particular, could face significant earnings dilution
if it completes a deal priced at more than $1.5 billion, observers said. The
Santa Rosa, Calif., company has quickly become a major force in the red-hot
market for coronary stents - the tiny metal scaffolds used to prop open blood
vessels after a balloon angioplasty.
But Arterial Vascular remains essentially a one-product company that needs
to broaden its product portfolio, particularly since growth in the U.S. stent
market is expected to cool off sharply in 1999.
Buying Schneider would go a long way toward expanding Arterial Vascular's
product offerings. Schneider's angioplasty balloons are considered
technologically advanced but have suffered from listless sales due to the lack
of a competitive coronary stent. The company's Wallstent doesn't have enough
radial strength to compete in coronary applications, but its sales have been
rising, thanks to growing use of the stent in other areas of the body.
Some observers believe a successful bid for Schneider could dilute Arterial
Vascular's 1999 earnings by as much as 50%. But Hambrecht & Quist Inc. analyst
Robert Faulkner said such calculations fail to account for research and
development cost savings from such a transaction.
The company's longer-term growth prospects would appear more sustainable
with Schneider than without it, Faulkner said. Using conservative operating
assumptions, he estimated a worst-case scenario for Arterial Vascular at about
36% dilution in 1999 earnings on a bid of $2 billion.
Boston Scientific's interest in Schneider lies in the Pfizer unit's strong
intellectual property portfolio, which includes patents for rapid-exchange
catheters and cross-licensing agreements for certain angioplasty-balloon
materials, sources said.
Schneider shares most of the key rapid-exchange patents with Guidant Corp.
(GDT), Boston Scientific's archrival in interventional cardiology.
Schneider successfully defended its rapid-exchange patents in a lawsuit four
years ago against SciMed Life Systems Inc., now part of Boston Scientific.
SciMed was ordered to withdraw its infringing catheters from the market and pay
Schneider more than $60 million in damages.
Also of interest to Boston Scientific is Schneider's cross-licensing
agreements with C.R. Bard Inc. (BCR) and J&J's Cordis unit for patents on
certain materials used in angioplasty balloons. Market sources said Boston
Scientific wants access to Bard and Cordis' patents because some of its
existing balloons may infringe on them.
Boston Scientific is the leading maker of angioplasty balloons, which could
cause antitrust problems for the Natick, Mass., company if it buys Schneider.
But Piper Jaffray Inc. analyst Arch Smith pointed out that Schneider derives
only about a third of its revenue from domestic sales. It is unlikely that
Boston Scientific would have pursued its bid as far as sources believe it did,
he added, if it weren't confident about overcoming such concerns.
-By Louis Hau; 201-938-5240; louis.hau@cor.dowjones.com
Copyright (c) 1998 Dow Jones & Company, Inc.
All Rights Reserved.
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