TORONTO (Reuters) – MDS Inc (MDS.TO) said on Wednesday it had struck a deal to sell its Analytical Technologies division and will seek buyers for its Pharma division so that it can concentrate on nuclear imaging, a move that some saw as a precursor to the company being wound up.
The Canadian life sciences company, which has specialized in analytical instruments, molecular imaging and contract research, said it planned to sell the analytical tools division to U.S.-based Danaher Corp (DHR.N) for $650 million, and would return between $400 million and $450 million to shareholders through a share buyback.
MDS shares, which this time last year traded at C$16.55, were up 23 percent at C$7.90 on the Toronto Stock Exchange.
The MDS deal was part of a larger deal that saw Danaher also buy AB SCIEX from Life Technologies Corp (LIFE.O) for $450 million.
Once the MDS sales are completed, the company will be left with only its troubled Nordion division, a supplier of medical isotopes for molecular imaging, radiotherapeutics and sterilization technologies.
Analysts, who have long argued that the breakup of MDS makes sense, said the company has very little choice but to hang on to nuclear division.
Nordion faces a shortage of isotopes after Canada’s Chalk River nuclear reactor, which supplies a third of the world’s medical isotopes, was shut down in May after a small leak of heavy water was found.
“Nordion still has this isotope supply issue, which would significantly impair the pricing that they could get on the sale of Nordion,” said David Windley, an analyst at Jefferies & Company, in Nashville, Tennessee.
“If they have confidence that that will get fixed, then it’s worthwhile to hang on to that at least for a while longer until it is fixed. You can imagine a buyer would severely discount that.”
The reactor’s operator, government-owned Atomic Energy of Canada Ltd, said the facility will not be operational until early 2010, leaving Nordion to scramble for alternatives.
Nordion has an exclusive agreement with AECL to distribute its isotopes.
MDS Chief Executive Stephen DeFalco rebuffed suggestions that the company is being wound down.
“I think it is effectively narrowing the business around Nordion, which we think has great potential when we get it through this period,” De Falco told Reuters.
He noted that aside from the recent isotope debacle, Nordion has been a steady contributor to the company’s EBITDA for the past 10 years.
“At the current time we are really focused on building Nordion and getting the isotopes back on line…resolving the issues with long-term isotope supply.”
The company said it sees third-quarter revenue in the range of $190 million to $195 million, and adjusted EBITDA of $5 million to $10 million from continuing operations.
The company said previously that it expects a $4 million a month hit to EBITDA related to the shutdown of Chalk River.
MDS reports its third-quarter results next week. Analysts on average expect earnings per share of nil before items and revenue of $209.5 million, according to Reuters Estimates.
($1=$1.11 Canadian) (Reporting by Scott Anderson; editing by Peter Galloway)