Endo looking to deleverage after American Medical Systems acquisition

By Jennifer Lanning Drey

Savannah, Ga., April 11 - Endo Pharmaceuticals Holdings Inc. will focus on deleveraging its balance sheet following its planned $2.9 billion acquisition of American Medical Systems Holdings, Inc., Alan Levin, Endo's chief financial officer, said during a conference call held to discuss the transaction.

Endo and American Medical Systems announced Monday that they have entered into a definitive agreement under which Endo will acquire American Medical Systems for $2.9 billion in cash, which includes the assumption and repayment of $312 million of American Medical Systems debt.

Endo plans to fund the transaction using a combination of cash on the balance sheet and fully committed term loans and bonds.

"Typically, we believe a couple hundred million dollars is a reasonable amount of cash to always have on hand for our operational reasons, so we'll use a modest excess cash component to fund the transaction," Levin said during the question-and-answer portion of the call.

The company has secured financing commitments from Morgan Stanley and Bank of America Merrill Lynch and has financing arrangements in place to close the transaction, he said.

"The strong cash flow generation of our combined company will enable us to allocate the majority of our cash flow to pay down debt to bring us back in line with our total-debt-to-EBITDA target range of 2 to 2.5 times on average," the CFO noted.

The company could consider additional small, bolt-on acquisitions in the future but will be most focused on organic growth opportunities across the business segments in which it currently operates, Dave Holveck, chief executive officer of Endo, said during the call.

Transaction rationale

The primary benefits of the American Medical Systems transaction include that it will strengthen Endo's core urology franchise while also providing the company greater scale in its devices and services business, Holveck said during the call.

Endo will be able to offer a broader range of treatment options in the urology space while growing revenues in the devices and services business, he noted.

The devices business is attractive to Endo because it brings relatively shorter, less expensive product development cycles, more favorable pricing and reimbursement flexibility and a higher degree of cash flow stability, Holveck noted.

"We strongly believe AMS is a high-growth asset that has a robust product portfolio and a strong pipeline of new products that we believe will enhance our commercial portfolio and growth trajectory over the next few years," he said.

On a 2011 pro forma basis, the combined company would have had revenues of $3 billion and EBITDA of $1 billion, according to the related news release.

Endo also said it expects to achieve at least $50 million of cost synergies by 2013.

The transaction is expected to close in the third quarter.

Endo is a Chadds Ford, Pa.-based specialty health-care services company focused on high-value branded products and specialty generics.

American Medical Systems is a Minnetonka, Minn., supplier of medical devices and procedures focused on pelvic disorders.

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