Volcano ($VOLC) is an excellent M&A target, but not before it does something to mend its ailing share price, according to an activist investor, and the San Diego devicemaker is facing pressure to mount a stock buyback and get itself on the market.
Engaged Capital, owner of a 5.1% stake in Volcano, is urging the company to put $200 million of the cash it has floating around into a share repurchase program, at once bolstering its stock value and assuaging investor fears that it'll spend the money on a dilutive acquisition. Furthermore, Engaged wants Volcano to switch up its compensation rules, better tying executive pay to company performance.
In the long term, Volcano's stable of well-performing cardiac products makes it an ideal takeover target for large medical device companies, and "an eventual sale of the business is likely and would represent the optimal outcome for shareholders," Engaged General Partner Glenn Welling wrote a regulatory filing. But only after Volcano takes the first two steps and shores up its market value.
Volcano didn't respond to a request for comment Monday, but Welling told Bloomberg that the two parties are in the midst of "constructive" talks about how best to improve the company's stock performance.
Despite its sizable share of the intravascular imaging market, Volcano has been plagued by slower-than-expected sales over the past year, citing a decline in U.S. stenting procedures and sluggish demand in Japan. Last week, Volcano revealed that it figures to rake in $395 million in revenue this year, well below Wall Street's expectations, and the news sent its shares down as much as 20% as analysts downgraded the company.
The maker of catheters and imaging devices has been a rumored buyout target for years, and Welling figures Volcano has been approached numerous times since going public in 2006.