Steris (STE) to Acquire Synergy Health in $1.9B Deal

Steris (NYSE: STE) and Synergy Health, plc announced that STERIS is commencing a "recommended offer" under U.K. law to acquire Synergy in a cash and stock transaction valued at £19.50 ($31.35) per Synergy share, or a total of approximately $1.9 billion, based on STERIS's closing stock price of $56.38 per share on October 10, 2014.

Upon closing, the combined business (New STERIS) will have approximately $2.6 billion in annual revenues from over 60 countries, approximately 14,000 employees, and will bring together geographically complementary businesses. For medical device manufacturers, STERIS's Isomedix and Synergy's Applied Sterilization Technologies (AST) will create a leading global supplier to best serve medical device Customers with a network of 58 facilities covering 18 countries. For hospitals, the combination of STERIS's Infection Prevention and Services businesses with Synergy's Hospital Sterilization Services will strengthen the breadth and depth of the offering, accelerating the development of hospital sterilization outsourcing worldwide.

"Synergy's focus on achievement, accountability, integrity and innovation has enabled it to deliver remarkable growth for its Customers, people and shareholders since its founding," said Walt Rosebrough, President and CEO of STERIS Corporation. "We have great respect for the performance that Dr. Richard Steeves and his people have achieved, and look forward to welcoming them to the STERIS team. Together, we create a balanced portfolio of products and services that can be tailored to best serve the evolving needs of our global Customers. Once the transaction is completed, New STERIS will be a stronger global leader in infection prevention and sterilization, better-positioned to provide comprehensive solutions to medical device companies, pharma companies, and hospitals around the world."

"Synergy shares STERIS's commitment to growth for all of its Customers and partners, and this acquisition joins two great companies that share a similar set of values and a strategic vision," said Dr. Richard Steeves, CEO of Synergy Health. "The combined entity brings together the strengths of both businesses, allowing New STERIS to accomplish much more than either one of us could separately."

New STERIS will be incorporated in the U.K., while its operational and U.S. headquarters will remain in Mentor, Ohio. Walt Rosebrough, current President and CEO of STERIS, will be the CEO of New STERIS. Mr. Rosebrough, along with New STERIS CFO Michael Tokich and most members of senior management, will reside in Northeast Ohio.

STERIS plans to expand the New STERIS Board to thirteen members, of whom ten will be the current STERIS Directors and three will be current members of Synergy's Board of Directors. Included in the three new Directors will be Synergy CEO, Dr. Richard Steeves. New STERIS is expected to be listed on the New York Stock Exchange under the ticker STE. The Boards of Directors of both companies have unanimously recommended the transaction.

Financial Highlights

STERIS has agreed to pay approximately $1.9 billion in cash and stock to acquire Synergy. In fiscal 2014, Synergy generated revenue of approximately $604 million and adjusted earnings before interest expense, income taxes, depreciation and amortization (EBITDA) of approximately $161 million. (1)

Upon completion of the transaction, each outstanding share of Synergy will be converted into the right to receive £4.39 ($7.06) in cash and 0.4308 of a share of New STERIS. The per-share consideration represents a premium of 39% to Synergy's closing stock price on October 10, 2014, the last trading day prior to the announcement, a 32% premium to the thirty trading day volume weighted average price, and a 27% premium to the 52-week high of Synergy. At closing, STERIS shareholders will exchange each share of stock they own in STERIS for one share of stock in New STERIS. STERIS shareholders will retain ownership of approximately 70% of New STERIS and Synergy shareholders will own approximately 30%. The transaction is expected to be taxable, for U.S. federal income tax purposes, to shareholders of STERIS.

The proposed transaction represents compelling value to both Synergy and STERIS shareholders through participation in the future growth prospects expected to result from the combination through their ownership of the combined company.

The transaction is not expected to impact STERIS's adjusted earnings per diluted share until closing. The transaction is anticipated to be significantly accretive to New STERIS's adjusted earnings per diluted share beginning in fiscal 2016.

The transaction is expected to result in total annual pre-tax cost savings of $30 million or more, which will be phased in 50% in fiscal year 2016 and 100% thereafter, from optimizing global back-office infrastructure, leveraging best-demonstrated practices across plants, in-sourcing consumables, and eliminating redundant public company costs. In addition, as a result of incorporating New STERIS in the U.K., STERIS anticipates that the effective tax rate of New STERIS, beginning in fiscal 2016, will be approximately 25%.

The transaction is subject to certain customary closing conditions, including approvals by STERIS and Synergy shareholders as well as regulatory approvals in the U.S. and U.K., and is anticipated to close by March 31, 2015. In conjunction with the transaction, STERIS obtained a 364-Day Bridge Credit Agreement. Bank of America Merrill Lynch, J.P. Morgan and KeyBank provided committed financing in conjunction with the transaction in the amount of approximately $1.6 billion.

Lazard acted as financial advisor and Wachtell, Lipton, Rose & Katz and Jones Day acted as legal advisors to STERIS in connection with the acquisition. Investec Bank plc acted as financial advisor and DLA Piper acted as legal counsel for Synergy.

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