Monday, July 27, 2009

Varian beats earnings estimates, and it doesn't matter(VARI, A))

AlphaNinja - Varian (VARI) reported non-GAAP earnings of 52cents this morning, ahead of the street consensus of 50cents.

In the release:

"The company has cancelled its previously announced investor conference call to review its third quarter results that was scheduled for Wednesday, July 29, 2009, at 2:00 p.m. Pacific time."

The call was canceled, and the earnings of little importance, because five minutes later the company announced they were being acquired by Agilent (A) for $52 in cash per share, a 35% premium to Friday's close. The stock is up 29% to 50.80, just a bit below the offer.

"“After thorough review together with our independent advisors, our Board of Directors determined that this transaction delivers excellent value for our shareholders,” said Garry Rogerson, chairman and chief executive officer of Varian, Inc. “We also anticipate that the combination will yield strong benefits for our customers and employees. Like Agilent, Varian has a long history as a technology leader. We each bring expertise and experience across a different but complementary set of markets and applications. For instance, while Agilent is a leader in food safety, Varian is well established in the energy industry, and has a broad spectrum of products for environmental analysis. Together, the combined company will be able to provide customers with the most comprehensive set of solutions across a wider range of industries.”

What Agilent(A) paid:

-->> About 1.24 times sales, versus its own valuation of 1.48times.
-->> About 20times earnings, compared to their valuation of 18.5 times earnings.
-->> Purchase price leads to a FCFY of 5% yield on the Varian purchase, definitely a positive for VARI shareholders to be paid so nicely...Agilent's FCFY on 2010 earnings estimates is 12% (after netting cash out of the market value).

Both boards agreed to the deal, and Agilent is paying a healthy price for the business. Agilent noted that it may take up to 5 years to hit their required 20% ROIC (return on invested capital) on this deal, which makes sense seeing as the FCFY they're paying is 5%. The market likes the deal so far, sending Agilent shares up 1.5% during a down day for the major indexes.

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