Tyco snags Mallinckrodt in $4.2 billion purchase

Medical-manufacturing giant Mallinckrodt will now be under the aegis of relatively unknown, Bermuda-based Tyco International in a $4.2-billion stock swap transaction that raises questions for Mallinckrodt’s many licensing partners.

Mallinckrodt has headquarters and locations around the globe, including in Mexico, Germany, England, the Netherlands, Italy, and Canada. Its U.S. headquarters are in St. Louis. Tyco will own all Mallinckrodt operations as part of the deal, said Barbara Abbett, that company’s vice president of communications.

Mallinckrodt shareholders will receive one Tyco share, valued at $47.50, for each share of Mallinckrodt, which sold the day before the deal was announced (June 28) at $28.75, and jumped to nearly $45 the following day. Abbett said one element of this year’s third-quarter earnings report called for an “intense and comprehensive” review of Mallinckrodt’s business.

Mallinckrodt’s third-quarter earnings, reported on April 18, showed that sales of respiratory and imaging products have slipped. Its pharmaceuticals business, however, was up. Pharmaceuticals reported $198 million in sales, up 9% from $182 million in the third quarter of last year. In fiscal 1999, Mallinckrodt posted $2.6 billion in revenue.

Tyco manufactures everything from medical supplies to fire-detection equipment. Dennis Kozlowski, Tyco’s chairman and CEO, said Mallinckrodt’s strong presence in various healthcare segments will set the stage for future acquisitions and licensing agreements.

Tyco Healthcare has already acquired a few healthcare product firms, including Sherwood, Davis & Geck; Auto Suture; and United States Surgical.

Mallinckrodt has plenty of its own experience in this area.

Within the last three months, Mallinckrodt has signed manufacturing and marketing agreements with several companies. Their list of partners includes Epix Medical, Schering, Nycomed Amersham, and Molecular Biosystems.

The agreements concern several contrast agents that Mallinckrodt manufactures and markets, including OptiMark, Optiray, Optison, Conray, and Hexabrix. Two years ago, Mallinckrodt established a collaborative effort with five universities in Europe and the U.S. to develop radiopharmaceuticals that use peptides or peptidelike molecules to deliver medical doses to specific sites in the body (Diagnostic Imaging 100, Winter 1999).

The company also has several licensing agreements for medical devices.

At the end of last month Mallinckrodt extended an existing agreement that allows medical-device manufacturer Welch Allyn to use Mallinckrodt’s Nellcor pulse oximetry technology in Welch Allyn’s patient-monitoring devices. That agreement is supposed to extend until 2003. A big part of Mallinckrodt’s medical equipment business since it acquired Nellcor Puritan Bennett three years ago has been pulse oximetry. Mallinckrodt suffered a $291.9 million net loss the same year it acquired Nellcor. That same year the company also reported that earnings in its medical imaging business declined as a result of falling prices for contrast media (SCAN 9/2/98).

Abbett said it’s too soon to tell if any of these agreements will be altered. “(Tyco’s) interest is in the strong products that we have to take to the marketplace,” she said.

Many of these products, Abbett noted, rely on strong partnerships Mallinckrodt has with outside companies.