Siemens Healthineers moves deeper into cancer care, picking up radiotherapy developer Varian Medical for $16.4B

The ultimate goal is to provide a comprehensive oncology portfolio that adds Varian’s linear accelerators, radiosurgery devices and proton therapy suites to Siemens’ imaging hardware, laboratory diagnostics and hospital consulting services. (Photo: Siemens Healthineers)

Siemens Healthineers has moved to take over Varian Medical Systems, makers of radiation therapy hardware and software, to build out its cancer care offerings and provide a platform spanning screening and diagnosis to treatment delivery and recovery.

And the medtech giant is paying a premium to do it: The all-cash deal totaling $16.4 billion is one of the largest healthcare acquisitions of the year, and breaks down to $177.50 for each Varian share—about 24% higher than the company’s closing price on its final day of trading last week, and about 42% more than a weighted average spanning the past 30 days.

"With this combination of two leading companies we make two leaps in one step: A leap in the fight against cancer and a leap in our overall impact on healthcare,” said Siemens Healthineers CEO Bernd Montag. The offer has been approved by Varian’s board and is expected to close in the first half of 2021, with Varian expected to retain its name and operate independently.

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The payment will be financed by a combination of loans from the company’s German conglomerate parent, Siemens AG, as well as a capital increase planned for later this year through the issuance of new shares and bonds outside the organization. As a result, Siemens AG’s stake in Siemens Healthineers is expected to drop from 85% to 72%.

“As the first of the three companies in our new Siemens Ecosystem, we gave Siemens Healthineers an independent, focused setup,” said Siemens AG President and CEO Joe Kaeser.

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“This approach is the core of our Vision 2020+ strategy, which we’re rigorously executing—even in the time of COVID-19. Therefore, we expressly welcome and support this acquisition since it will be a powerful driver for Siemens Healthineers,” Kaeser said. “A transformational step of this kind wouldn’t have been possible in the conglomerate structure of the old Siemens AG.”

Their ultimate goal is to provide an overarching and comprehensive oncology portfolio, adding Varian’s linear accelerators, radiosurgery devices and proton therapy suites to Siemens’ various imaging hardware, laboratory diagnostics and hospital consulting services.

In addition, Varian’s care management and analytics software for cancer treatments will fold in with Siemens’ healthcare IT offerings and digital platforms for decision support.

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"In addition to delivering immediate and compelling value to our shareholders, the combination with Siemens Healthineers brings us even closer to realizing our transformative vision of a world without fear of cancer,” said Varian’s president and CEO, Dow Wilson.

“Siemens Healthineers values our talented and engaged employees and recognizes the strength of the Varian brand, our cutting-edge portfolio, and the relationships we've nurtured,” Wilson added. “We are thrilled to partner with them to extend our renowned customer care to reach more patients around the world."

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In a note to investors, Bernstein analysts wrote: "While near-term the deal structure creates an overhang, and there is notable investor scepticism about the forecasted sales synergies, our enthusiasm about the future of data-driven treatments across healthcare make us optimistic about the long-term value creation potential from this tie-up."

On the same day of the deal’s announcement, Varian published its financial results for the third quarter of its fiscal year—showing total revenues down 16%, to $694 million compared to last year’s $825.8 million, due to the worldwide impacts of COVID-19.

For its oncology systems, gross orders dropped 14% in terms of dollars, as many healthcare providers deferred large purchases and the installation of new systems; however, the company said that orders over the past 12 months were up 1%.

"I am proud of the team's execution during the quarter, especially given the challenging operating backdrop created by the pandemic," Wilson said. "Our continued investments in our strategic enablers, combined with our strong financial standing, position us well to exit the pandemic stronger, and extend our global leadership in oncology.”

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