Varian Medical Systems (VAR - Analyst Report) recently revealed that it has entered into an agreement with Bank of America Corporation (BAC - Analyst Report) to repurchase common stock, amounting to $250 million, under its accelerated share repurchase program. Simultaneously, Varian enhanced the borrowing capacity of its revolving credit facility with Bank of America from $225 million to $300 million.
As per the agreement, Varian will pay Bank of America $250 million and, in turn, receive some 3.8 million shares, which constitute 85% of the shares covered by the transaction based on the closing price, as of August 24, 2011. The final figure for the number of shares repurchased, as part of the deal, will be arrived at as per a final settlement.
According to the company, accelerated share repurchase arrangements are an integral element of its overall framework for enhancing value for investors. The current program is not expected to significantly impact earnings in the current fiscal year but will be accretive subsequently.
Varian will repurchase the shares under the unused portion of a 12 million share repurchase authorization, dated February 11, 2011, which expires at the end of fiscal 2012. Upon culmination of the program, Varian anticipates that about 7.4 million shares will remain under the authorization (dated February 11, 2011). The company will retire shares that it has repurchased.
At the end of the third quarter of the current fiscal, Varian had 119.1 million shares outstanding. The company has already expended about $2.3 billion to repurchase 52 million shares, at a mean price of $44.49, since share repurchase programs were initiated at the end of fiscal 2001.
Varian is a leading manufacturer of integrated radiotherapy systems for treating cancer and a premier supplier of X-ray tubes for diagnostic imaging applications. The company operates in a technology-driven environment where success depends on the use of new technology, product development and upgrades. In the radiation oncology market, Varian competes with Accuray (ARAY - Analyst Report).
Varian is poised to increase its market share in radiation oncology. It is currently enjoying a healthy demand for its coveted RapidArc and TrueBeam radiotherapy technology, which is meaningfully contributing to its oncology net order growth.
However, Varian aggressively competes with well-funded competitors for a limited pool of sales volume. Further, uncertainties stemming from health care reform and a still weak hospital capital spending environment across many developed countries, especially in Europe, provide headwinds. We currently have a Neutral long-term rating on Varian supported by a short-term Zacks #3 Rank.