MDS Announces Strategic Repositioning



    
    Company Signs Agreement to Sell MDS Analytical Technologies to Danaher
    Corporation;
    Plans Substantial Return of Sale Proceeds to Shareholders;
    Announces Intent to Sell MDS Pharma Services
    

    TORONTO, Sept. 2 /CNW/ - MDS Inc. (TSX: MDS; NYSE:   MDZ), a leading
provider of products and services to the global life sciences markets, today
announced that it has entered into an agreement to sell its MDS Analytical
Technologies business, a leading global supplier of drug discovery and life
sciences research tools, to Danaher Corporation (NYSE:   DHR) for $650 million
in cash, and that it currently intends to return approximately $400 million to
$450 million of the sale proceeds to its shareholders. The completion of the
sale is subject to shareholder and regulatory approval, and other closing
conditions.
    The Company also announced that it intends to sell its MDS Pharma
Services business, a leading provider of innovative drug discovery and
early-stage development solutions for pharmaceutical and biotechnology
companies. Upon completion of these transactions, the Company would be focused
solely on its MDS Nordion business, which is a leading provider of medical
isotopes for molecular and diagnostic imaging, radiotherapeutics and
sterilization technologies.
    These decisions follow a comprehensive strategic review by a Special
Committee of independent Directors working with Management and financial and
legal advisors. The MDS Inc. Board of Directors believes the actions announced
today are in the best interests of the Company and its shareholders, and
unanimously recommends that shareholders vote in favor of the sale of MDS
Analytical Technologies.
    "The Board and Executive Management Team believe the proposed path
forward provides the greatest opportunity to unlock the value of MDS
businesses in the near-term and enables a substantial return of proceeds from
the sale of the MDS Analytical Technologies business to shareholders," said
James S. A. MacDonald, Chairman of MDS Inc.'s Board of Directors.
    Goldman, Sachs & Co. has provided an opinion to the Board of Directors of
MDS Inc. to the effect that the consideration to be paid to the Company for
the MDS Analytical Technologies business pursuant to the Sale Agreement is
fair, from a financial point of view, to the Company. In addition, Blair
Franklin Capital Partners Inc. has provided an opinion that the consideration
being received by the Company pursuant to the sale of the MDS Analytical
Technologies business is fair, from a financial point of view, to the
Company's shareholders.
    "The economic downturn and the prolonged shutdown of Atomic Energy of
Canada Ltd.'s (AECL) National Research Universal (NRU) reactor have created
significant challenges for our businesses that contributed to this course of
action," said Stephen P. DeFalco, President and Chief Executive Officer of MDS
Inc. "During this process, our MDS Pharma Services and MDS Analytical
Technologies businesses will remain focused on delivering exceptional service
to customers. MDS Nordion will remain focused on innovation and on building
its market leadership in the provision of medical isotopes for molecular and
diagnostic imaging, radiotherapeutics and sterilization technologies."

    MDS Analytical Technologies

    Under the terms of the agreement, Danaher will acquire the MDS Analytical
Technologies business, which includes approximately 1,100 employees operating
in 10 countries. Under a separate arrangement, Danaher has agreed to purchase
the portion of the Applied Biosystems/MDS Analytical Technologies mass
spectrometry joint-venture partnership held by Life Technologies Corporation.
Completion of each transaction is conditioned on the concurrent closing of the
other transaction.
    When completed, these transactions will create a fully integrated,
industry-leading, global mass-spectrometry business. In combination with MDS
Analytical Technologies' Drug Discovery and Bioresearch product lines, this
newly integrated business will serve customers with an award-winning product
line.
    MDS is committed to working with Danaher, a strong company with a track
record of successful acquisitions, to achieve a smooth and timely transition
for customers and employees.
    To approve the sale of MDS Analytical Technologies, a Special Meeting of
Shareholders is expected to be held in October 2009. The sale must be approved
by two-thirds of the votes cast at the meeting.
    MDS anticipates that a management proxy circular for the shareholder
meeting will be mailed to shareholders later this month and will be available
at www.sedar.com, www.sec.gov/edgar.shtml and www.mdsinc.com. The transaction
is expected to close in the fourth calendar quarter of 2009.

    Proceeds from the Sale

    Upon completion of the sale of the MDS Analytical Technologies business,
MDS currently intends to return approximately $400 million to $450 million of
the sale proceeds to shareholders by way of a share buyback through a
Substantial Issuer Bid. The Company currently intends to initiate a
Substantial Issuer Bid within 30 days following completion of the sale of its
MDS Analytical Technologies business.
    MDS also expects to use a portion of the proceeds, together with existing
cash on hand, to retire all outstanding senior unsecured notes, pay
transaction and restructuring costs and fund ongoing operations of the
remaining business.

    MDS Pharma Services

    MDS also announced that it is actively seeking a buyer for its MDS Pharma
Services business, which is focused on Early Stage operations (Discovery
through Phase IIa). MDS Pharma Services is a leader in molecular screening and
profiling, has strength in bioequivalence and bioanalysis studies, and has one
of the largest Phase I bed capacities in the industry.
    A sale of the MDS Pharma Services business is expected to provide
opportunities to build market leadership and to position the business to
better serve global customers in an increasingly competitive contract research
market. As previously announced on June 1, 2009, MDS continues to seek a buyer
for its Central Labs business.
    Subsequent to the completion of a sale of the MDS Pharma Services
business, the Company anticipates it would distribute a portion of the sale
proceeds to shareholders. There can be no assurance that MDS will complete a
transaction involving MDS Pharma Services. If MDS determines that there is not
an acceptable transaction for MDS Pharma Services, it intends to retain and
invest in building the business.

    MDS Nordion

    As a stand-alone business, MDS Nordion will continue to focus on building
its core strengths and leadership position in providing medical isotopes for
molecular imaging, radiotherapeutics and sterilization technologies. Despite
the current shutdown of AECL's NRU reactor, MDS Nordion continues to deliver
positive adjusted EBITDA and cash flow from sterilization technologies and
radiopharmaceuticals. MDS Nordion's goal is to remain an innovative market
leader delivering strong financial performance.
    Assuming completion of the sale of MDS Analytical Technologies and MDS
Pharma Services, MDS will remain as a publicly traded entity consisting solely
of the MDS Nordion business. The Company will continue to review its
operational requirements and intends to take appropriate action to reflect the
scope and complexity of MDS following the completion of these transactions.

    MDS Inc. Third Quarter 2009 Outlook

    In the third quarter, MDS Inc. will begin reporting MDS Pharma Services
Late-Stage operations as discontinued operations to reflect the previously
announced decision to divest Late-Stage operations and to focus MDS Pharma
Services on the delivery of Early-Stage services only. As a result, MDS has
revised prior periods and expects to report second quarter results from
continuing operations as net revenues of approximately $208 million and
adjusted EBITDA of approximately $29 million, versus previously reported
results for net revenues and adjusted EBITDA of $257 million and $31 million,
respectively.
    For the third quarter of 2009, MDS expects to report net revenues in the
range of $190 million to $195 million and adjusted EBITDA in the range of $5
million to $10 million from continuing operations. Third quarter results were
negatively impacted by further softening in customer demand for Phase I
services as customers continue to reprioritize their research-and-development
pipelines in relation to economic pressures, pharmaceutical company mergers,
reduced biotech funding and customer concerns regarding uncertainties created
by the Company's strategic review process. In addition, results for the
quarter were negatively impacted by the unexpected shutdown of AECL's NRU
reactor. As previously announced, the NRU outage reduces adjusted EBITDA by
approximately $4 million per month.
    MDS also expects to report third quarter 2009 cash flow in the range of
$52 million to $57 million, including $35 million of proceeds related to the
sale of Phase II-IV operations which closed on July 1, 2009. The Company's
cash balance at July 31, 2009 is expected to be in the range of $295 million
to $300 million.
    The strategic repositioning actions announced today will be treated as a
subsequent event for financial reporting purposes in the third quarter of
2009.

    Conference Call

    MDS will hold a conference call today at 8:00 a.m. EDT to discuss this
morning's announcement. The call will be Webcast live at www.mdsinc.com and
will also be available in archived format at
http://www.mdsinc.com/investors/webcasts_presentations.asp after the call.

    Advisors

    In connection with the transaction, Goldman, Sachs & Co., and RBC Capital
Markets are acting as financial advisers to MDS, and Blair Franklin Capital
Partners Inc. are acting as financial advisers to MDS's Board of Directors.
Skadden, Arps, Slate, Meagher & Flom LLP and Fasken Martineau DuMoulin LLP are
acting as legal counsel to MDS. In addition, Goodmans LLP is acting as legal
counsel to MDS's Board of Directors.

    Sale Agreement

    The full text of the Sale Agreement for the sale of the MDS Analytical
Technologies business will be available shortly at www.sedar.com and
www.sec.gov/edgar.shtml.

    Transaction Conditions

    The transaction is subject to various conditions to closing, including
the affirmative vote of at least 66 2/3% of the shareholders casting votes on
the transaction, regulatory approvals, the concurrent closing of the Life
transaction and other customary closing conditions. In addition, the Company
has the right to terminate the Sale Agreement if, among other things, holders
of more than 15% of the Company's outstanding common shares have validly
exercised their dissent rights in respect of the sale.
    The Board of Directors of MDS has agreed that it will not solicit or
initiate discussions or negotiations with any third party concerning any
business combination or other material transactions involving MDS Inc. and its
subsidiaries (other than transactions involving MDS Pharma Services and/or MDS
Nordion, that do not involve any assets of the MDS Analytical Technologies
business and that do not adversely affect the consummation of the transactions
contemplated by the Sale Agreement). However, under the Sale Agreement, the
Board of Directors has the right to respond to unsolicited proposals for the
acquisition of all or substantially all of the assets or capital stock of MDS
Inc. and/or the MDS Analytical Technologies business, all subject to the terms
of the Sale Agreement. If the Board determines, among other things an
alternative transaction is more favorable, from a financial point of view, to
the Company's shareholders, the Board is entitled to change its recommendation
to shareholders, subject to Danaher's right to make a revised proposal with
respect to the acquisition of the MDS Analytical Technologies business and the
obligation of the Company to hold the meeting and allow shareholders to vote
on the sale of the MDS Analytical Technologies business to Danaher. In certain
circumstances in which the Sale Agreement is terminated, including in the
event that the Board adversely changes its recommendation with respect the
sale of the MDS Analytical Technologies business to Danaher, the Company is
required to pay to Danaher a termination fee of 4% of the consideration being
offered by Danaher for the acquisition of the MDS Analytical Technologies
business. The foregoing description is subject entirely to the terms of the
Sale Agreement.

    About Danaher Corporation

    Danaher is a leading manufacturer of Professional Instrumentation,
Medical Technologies, Industrial Technologies and Tools and Components
(www.danaher.com).

    About MDS Inc.

    MDS Inc. (TSX: MDS; NYSE:   MDZ) is a global life sciences company that
provides market-leading products and services that customers need for the
development of drugs and diagnosis and treatment of disease. MDS Inc. is a
leading global provider of pharmaceutical contract research, medical isotopes
for molecular imaging, radiotherapeutics, and analytical instruments. MDS has
more than 4,200 highly skilled people in 13 countries. Find out more at
www.mdsinc.com or by calling 1-888-MDS-7222, 24 hours a day.

    Caution Concerning Forward-Looking Statements

    This document contains forward-looking statements, including statements
with respect to the proposed sale of the MDS Analytical Technologies business,
the proposed use of proceeds from the sale, the strategy of the remaining
business and the Company's intention to sell other assets of the Company. Some
forward-looking statements may be identified by words like "expects",
"anticipates", "plans", "intends", "indicates" or similar expressions. The
statements are not a guarantee of future performance, and are inherently
subject to risks and uncertainties. MDS's actual results could differ
materially from those expressed in the forward-looking statements due to these
risks and a number of other factors, including, but not limited to, successful
implementation of structural changes, including restructuring plans,
acquisitions and divestitures including the proposed sale of the MDS
Analytical Technologies business, technical or manufacturing or distribution
issues, the competitive environment for MDS's products and services, the
degree of market penetration of its products and services, the ability to
secure a reliable supply of raw materials, the impact of our clients'
exercising rights to delay or cancel certain contracts, the strength of the
global economy, the stability of global equity markets, the availability and
cost of financing, the impact of the movement of the U.S. dollar relative to
other currencies, particularly the Canadian dollar and the euro, uncertainties
associated with critical accounting assumptions and estimates, and other
factors set forth in reports and other documents filed by MDS with Canadian
and U.S. securities regulatory authorities from time to time, including MDS's
quarterly and annual MD&A, Annual Information Form, and Annual Report on Form
40-F for the fiscal year ended October 31, 2008, filed with the U.S.
Securities & Exchange Commission.

    Use of Non-GAAP Financial Measures

    Non-GAAP measures, including terms such as net revenue, adjusted EBITDA,
adjusted EPS, new orders and backlog, are used to explain the operating
performance of the Company. These terms are not defined by GAAP, and MDS's use
may vary from that of other companies. MDS uses certain non-GAAP measures so
that investors and analysts have a better understanding of the significant
events and transactions that have had an impact on results, or may have an
impact on MDS's financial outlook. MDS provides a description of these
non-GAAP measures and a reconciliation of these non-GAAP measures for actual
results to GAAP financial results in its MD&A and Annual Report.





For further information:

For further information: MEDIA: Janet Ko, (905) 267-4226,
janet.ko@mdsinc.com; INVESTORS: Kim Lee, (905) 267-4230, kim.lee@mdsinc.com

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Nordion Inc.

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