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MWI Vet Clears Antitrust Hurdle

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MWI Veterinary Supply Inc. recently received early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act for the pending acquisition of Micro Beef Technologies, Ltd. The termination was granted by the Department of Justice and Federal Trade Commission. The expiration of the waiting period fulfills one of the closing conditions of the transaction, which is now expected to close by the end of October 2011.

Earlier in September, MWI Vet entered into a definitive agreement to acquire Micro Beef Technologies for $60 million, including approximately $53.4 million in cash and common stock valued at $6.6 million. Initially MWI Vet expected to close the transaction by the first quarter of fiscal 2012, ending December 31, 2011.

Micro Beef is a health products distributor as well as an innovator of computerized management systems for the production animal market. During fiscal 2010, ended in December 31, 2010, the company reported total revenues of $193 million. MWI Vet expects the proposed acquisition, to be slightly accretive for the company in fiscal 2012.

In order to drive further market share, MWI Vet has taken various initiatives over the past few years. The company has acquired many companies to either gain traction in areas where it has low market share or for targeting new areas.

With the acquisition of UK-based Centaur Services in 2010, an animal health products supplier, MWI Vet strengthened its UK operations. In March this year, the company acquired Midwestern US-based Nelson Laboratories Limited, a distributor of animal health products to over 1,100 veterinary practices. We believe these acquisitions are a strategic fit for MWI Vet and therefore hold immense potential for the company’s future growth.

Revenues over the last 10 years have grown at a CAGR of 20.2%. MWI Vet’s expanding sales force fueled higher market penetration on the back of new customer wins and increased sales to existing customers. Additionally, MWI Vet has been trying to focus on value-added services including the e-commerce platform, pharmacy fulfillment programs for both production and companion animal products and other value-added services.

Moreover, MWI Vet is focused on preserving long-term customer relationships as well as building new ones. Organic revenues attributable to existing customers represented approximately 40% of revenue growth during the reported quarter while new customers contributed the rest.

We believe all these key strategies hold immense potential for the company’s future growth. Presently we have a Zacks #2 Rank (Buy) on the stock over the short term.

However, the company faces stiff competition from key players like Henry Schein (HSIC - Free Report) . Further, MWI Vet’s business in US and UK is under tremendous pressure given the prevailing economic uncertainty in the companion animal and production animal markets, coupled with tightening credit markets. We are also concerned about the vendor dependency of the company. Hence, we remain Neutral on MWI Vet over the long term.

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