Long courtship put Hologic on cusp of acquiring Cytyc
Deal would create one of state's largest life sciences companies
A $6.3 billion deal to create a local women's healthcare giant was years in the making.
According to filings with the Securities and Exchange Commission, Hologic Inc., a Bedford company that makes mammography products, quietly courted Marlborough Pap smear-test maker Cytyc Corp. for three years before unveiling its blockbuster acquisition deal in May. The deal is expected to be approved by shareholders of both companies Thursday and completed Oct. 22.
In 2004, Thomas Umbel, a Hologic senior vice president of business development, asked his counterparts at Cytyc whether they were "interested in further exploring potential business opportunities," according to an SEC filing by Hologic.
Nothing came of the meeting. But Umbel, a DuPont Co. veteran who has worked for Hologic since 1999, persisted. In May 2006, Umbel and Hologic's research director met with a Cytyc senior vice president, John P. McDonough, to discuss "the merits of a possible business combination between Hologic and Cytyc."
The 2006 talks didn't go anywhere, either. But within Hologic, board members and executives continued to discuss the possibility of teaming up with Cytyc. In February, Umbel, 53, again approached McDonough about a possible merger, setting off three months of negotiations that culminated in an agreement in May to buy Cytyc.
The lengthy courtship highlights the fact that companies must often spend years laying the groundwork before pulling off a major deal. In this case, both firms are also major players in the women's healthcare industry and both are based in the Boston suburbs, so they eyed each other long before seriously discussing a merger.
"It's hard not to be familiar with other strong companies in your backyard," said Glenn Muir, Hologic's chief financial officer. "You run into the same people time and time again."
Hologic and Cytyc combined will create one of the state's largest life sciences companies with annual sales of $1.7 billion, a stock market value approaching $8 billion and about 3,200 employees worldwide, including 800 in Massachusetts. Muir said the Marlborough and Bedford facilities will remain open after the merger.
"Both companies are in a growth mode," Muir said. "We expect both facilities will continue to expand, not shrink."
Hologic is paying $2.3 billion in cash and $4 billion in stock for Cytyc. But because Cytyc is bigger than Hologic, Cytyc shareholders will wind up with 55 percent of the combined company. Still, a majority of board members will come from Hologic. And Hologic chief executive Jack Cumming will remain as chief executive of the combined company, which will be called Hologic.
At an investor conference in June, Cumming said Hologic has been trying to make acquisitions to speed its growth. But the company was running out of opportunities in its traditional product lines, so it began looking to broaden its portfolio. Cumming said Cytyc was a perfect addition.
Hologic is a major provider of mammography equipment, controlling more than half of the nation's digital mammography market. Cytyc is best known for making a Pap test for cervical cancer, though both companies also make other products for the women's health market.
"We have the same passion for early screening of diseases," Muir said. "We both have leading technologies and we are both local."
After the merger, Hologic has predicted the combined company's revenue will increase at more than 20 percent a year. The company also expects profit per share to grow at a similar clip. The companies said they eventually expect to save $25 million annually by combining some operations, though Muir said there are no plans for significant job cuts.
RiskMetrics Group, a company that advises shareholders on proxy issues, urged Hologic stockholders last week to approve the deal. But in its report, RiskMetrics noted that Cytyc did little to check to see if other potential suitors might be willing to pay more for the company. Cytyc declined to comment.
Cytyc also declined to say why it became interested in discussing a merger with Hologic this year, after having rebuffed the company in the past.
Todd Wallack can be reached at twallack@globe.com. 