Urohealth Systems Ups Its Bid by 35% to Purchase Imagyn

By BARBARA MARSH

July 19, 1997 12 AM PT

TIMES STAFF WRITER

Urohealth Systems Inc. on Friday sweetened by 35% its deal to buy Imagyn Medical Inc. for stock, and the boards of the two Orange County medical device companies endorsed the revised terms.

Imagyn, a Laguna Niguel company whose low stock price and innovative instruments for gynecological surgery make it an attractive target, also said it rejected the unsolicited offer received earlier this week from giant U.S. Surgical Corp. The Norwalk, Conn.-based company said it won’t increase its offer.

Urohealth’s revised deal, announced before the stock market opened Friday, was initially valued at $58.8 million--slightly higher than U.S. Surgical’s bid of $57.5 million in cash or stock.

However, Costa Mesa-based Urohealth’s stock dropped slightly during the day, pushing the value below the competing bid to $56.5 million. The original deal was valued at $43.5 million before Urohealth increased its bid.

Imagyn Chief Executive Franklin D. Brown said the Urohealth offer beats U.S. Surgical’s bid for several reasons. Under the revised offer, he noted, Imagyn’s stake in Urohealth, a promising, rapidly growing company, will increase from 23.5% to 29.6%.

Brown added that the “fit” between the two companies is “extremely good.” He said that, while Imagyn’s strength is in the technology of its product line, it needs the sort of powerful distribution system that Urohealth is working to build.

In Nasdaq trading Friday, the revised deal brought little response from Imagyn or Urohealth investors. Urohealth stock closed at $4.88 a share, off 6 cents for the day, while Imagyn closed at $6.88, unchanged. In New York Stock Exchange trading, U.S. Surgical fell $1.63 to close at $37.75.

Urohealth increased terms of its all-stock offer to 1.4 of its shares for every Imagyn share. It originally offered 1.0358 shares. Urohealth expects to issue about 11.4 million shares of common stock to complete the exchange.

The revised Imagyn-Urohealth deal, subject to approval by shareholders of both companies as well as regulators, is expected to close by the end of August.

When Urohealth first announced its offer April 21, Urohealth’s stock was trading at about $7.75 and the deal was valued at about $70 million.

The stock has tumbled since then as the company repeatedly postponed release of its earnings for the year ended March 31. On July 1, the company disclosed that not only had it lost a surprising $89 million during the year, but it expected revenue for its first quarter would fall millions short of analysts’ estimates.

Separately, Urohealth said Friday that James L. Johnson, its chief financial officer, has resigned, but the firm offered no explanation.

Imagyn’s Brown said he questioned Urohealth about the matter and found its explanations satisfactory, but he wouldn’t disclose specifics.

Johnson could not be reached for comment.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

New Bid

Imagyn Medical Inc. has received an improved offer to merge with Orange County-based medical devices company Urohealth. The latest offer, which involves stock, would increase Imagyn stockholders’ stake in Urohealth from 23.5% to 29.6%.

Imagyn Medical at a Glance

Headquarters: Laguna Niguel

Founded: 1989

Chairman/president/CEO: Franklin D. Brown

Business: Designs and develops devices for diagnosis and treatment of gynecological and reproductive disorders

Employees: 87

1996 net sales: $9.4 million

1996 net loss: $4.4 million

Initial public offering: May 1996; trades on Nasdaq

Net Sales (in millions)

1996

1st qtr.: $1.5