American Medical Systems Merger & Acquisition Announcement - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning. My name is Brandy, and I will be your conference operator today. At this time I would like to welcome everyone to the Laserscope acquisition conference call. (OPERATOR INSTRUCTIONS). Thank you. Mr. Emerson, you may begin your conference.

MARTY EMERSON, CEO, AMERICAN MEDICAL SYSTEMS: Thank you. Good morning. This is Marty Emerson, President and CEO of American Medical Systems. It is my pleasure to welcome you to the Laserscope acquisition conference call. With me this morning are Carmen Diersen, our Chief Financial Officer, and John Nealon, our Senior Vice President of Business Development. I will begin today's call by providing a brief statement about the Laserscope technology, a description of the obstructive BPH market opportunity, a discussion of the strategic fit within AMS, and then the assembled team will be happy to take your questions.

Before I begin discussing the acquisition, I must preface all comments with a Safe Harbor statement. Some of the statements made today, including statements regarding our anticipated acquisition of Laserscope and expected benefits of the transaction, along with expected results of the tender offer, will be forward-looking and are made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Those risks and uncertainties are referenced in today's press release and described in our most recent annual report, Form 10-K and other more recent filings with the Securities and Exchange Commission.

I would also like to remind all listeners that this call has been announced as a Laserscope acquisition conference call, and therefore, we will not be commenting on any parts of our business other than the acquisition and integration of Laserscope.

Those statements having been made, we can now move forward with the exciting news covered in our press release issued earlier this morning. As announced earlier this morning, we have entered into a definitive agreement to acquire Laserscope, a publicly held company. We will commence a tender offer to acquire all of the outstanding shares of Laserscope at a price of $31 per share in cash no later than Wednesday, June 14, 2006. The total acquisition price for Laserscope shares and options is approximately $715 million. Laserscope has an array of laser-based technology focused on surgical applications for both urology and aesthetics. We do not consider Laserscope's aesthetics business to be a strategic fit for AMS, so we will be considering alternatives for that business including divestiture.

Accordingly, the financial results of that product line will be accounted for as a discontinued operation, and all our comments in the remainder of this call will exclude the impact of the aesthetics business.

The Laserscope GreenLight BPH family of products is the primary urological solution of Laserscope. GreenLight is delivered predominately in an operating room setting where it offers the urologist the important combination of a safe, efficacious and economically appropriate treatment for obstructive BPH. GreenLight's laser technology has been clinically proven to be safe for patients while also effective in the outcome of relieving obstructive BPH symptoms.

The GreenLight procedure has seen incredible growth over the past few years. Physician and hospital feedback is overwhelmingly positive with respect to the value this procedure has brought to them and their patients. If it has not already, we believe that the GreenLight technology has the potential to become the standard of care for the surgical treatment of obstructive BPH in the eyes of both physicians and patients.

We believe that the symptoms of obstructive BPH affects over 1 million men around the world. Estimates show that 50% of all men over 50 suffer from some symptoms of BPH, and that incident rises to 70% of men over age 65. In the United States alone, nearly 300,000 surgical interventions are performed annually to treat obstructive BPH. Internationally we estimate that there are roughly 850,000 surgical procedures to treat obstructive BPH annually. We estimate that GreenLight has approximately 18% share of the surgical treatments of obstructive BPH procedures in the United States and approximately 2% share of the surgical treatment for obstructive BPH internationally.

There are four primary strategic reasons this acquisition makes sense for AMS. First and foremost, this acquisition will again build on our reputation and leadership position in providing proven and innovative solutions for urologists around the world. The procedure and revenue growth from this new technology will be completely incremental to the current AMS portfolio of products and its corresponding long-term organic growth rates.

Through the acquisition of Laserscope, AMS will be committed to providing a range of therapy solutions for BPH patients. While AMS currently offers to urologists its TherMatrx product for the treatment of non-obstructive BPH, the addition of GreenLight to the AMS product line will allow AMS to enter the obstructive BPH segment, which requires tissue removal for patient relief.

Second, this addition of Laserscope to our product portfolio will allow us to bring the full force of our global sales and marketing resources to bear in accelerating the rate of growth and success that current Laserscope sales and marketing teams have accomplished over the past few years. As well, GreenLight will allow AMS to more aggressively expand its direct presence in new markets around the world. Japan and China are examples of markets where AMS has historically had a very small presence.

Laserscope is selling its current GreenLight product in China. A Laserscope team has already begun the process of obtaining Chinese and Japanese regulatory clearance for the new GreenLight HPS technology. We are excited about our ability to begin to build a broader AMS presence in both China and Japan when these approvals are obtained.

Third, this acquisition has significant and very achievable synergy opportunities. We anticipate that this acquisition will be accretive to AMS' reported earnings beginning in 2008. AMS has seen significant increases in its profitability over the past six years, and we believe that this acquisition will provide increased leverage in the future.

The transaction will be accretive to cash earnings beginning in 2007. Further, the significant revenue growth of Laserscope had incremental profitability opportunities for the combined companies. We are especially excited about the real and significant opportunities to dramatically increase the international profitability of the combined companies.

Fourth and finally, as a leading provider of innovative technologies and solutions to physicians around the world, we are excited about the opportunity to expand Laserscope's proprietary laser technology across the broad spectrum we're committed to serve. Laserscope has effectively developed other urological applications using their proprietary GreenLight technology. This includes Laserscope's [stone light] therapy, a minimally invasive solution for treating kidney stones, which we are also pleased to offer urologists across the world.

As well, we believe that Laserscope's recently announced acquisition of InnovaQuartz will allow us to drive both innovation and cost reduction across the entire family of GreenLight products. We have arranged financing of the transaction through a new senior credit facility and a bridge facility. We're currently exploring other more permanent and long-term forms of financing.

Today is a pivotal day in the history of AMS. This strategic move greatly expands our overall revenue and earnings growth potential and leverages our long-standing urology relationship to increase patient availability to a unique and valuable therapy.

Thank you for your attention. I would now like to open up the call to questions. Brandy, our operator, will instruct you on how to be cued to ask questions. Brandy?

OPERATOR: (OPERATOR INSTRUCTIONS). Tom Gunderson, Piper Jaffray.

TOM GUNDERSON, ANALYST, PIPER JAFFRAY: I understand building on the franchise from the platform that you have in urology and I understand taking your worldwide distribution and leveraging that. Can you give us anymore details for those of us who have not been paying whole a lot of attention to Laserscope recently as to, of their total revenues, how much in 2005 or 2006 are expected to be GreenLight and how much are aesthetics?

MARTY EMERSON: I tell you what, they have not broken that out historically. And at this point, given that the transaction has not closed, I would prefer that I stay away from disclosing information that they have not disclosed.

TOM GUNDERSON: Is the urology business more profitable than the aesthetic business on an operating basis?

MARTY EMERSON: You know, there is not a lot of clear segment reporting, and so I'm not going to comment on historically. We have done, as you can imagine, extensive due diligence and extensive modeling, and we are very comfortable as is evidenced by my statement that on a cash basis this will be accretive in 2007, that this will be a very profitable acquisition to AMS in terms of cash flow generation in the very near-term.

TOM GUNDERSON: All right. And then as far as it being on a cash basis in 2007, is that in the third or fourth quarter? Is that for the whole year? What does that mean when you are accretive for 2007?

MARTY EMERSON: It is for the whole year. I'm going to stay away from giving lots of clarity quarter by quarter at this point. Obviously as we zero in closer on an actual close date and have at that point the benefit of even more integration planning, we will give a lot more guidance and clarity around what our balance of 2006 and then, therefore, 2007 expectations are. But it is for the full year 2007.

TOM GUNDERSON: Okay and then last question and I will get back in queue. When you say you are going to look at strategic alternatives for aesthetics business because that does not fit with where you are right now and that includes divestiture, what else does it include?

MARTY EMERSON: Well, you know, I suppose it would include the full-spectrum of opportunities theoretically. Practically speaking, we think there is a core business there that someone would find valuable, and AMS has consistently said that aesthetics is not an area that we think is appropriate for us to step into, recognizing that many of our call points have an aesthetic play in them already. But we have pretty consistently said that that is not something we're going to get involved in.

Having said that, the due diligence work we did said that there are some very valuable pieces in then aesthetic business that someone focused on aesthetics would probably be very interested in. I don't think it is a stretch for us to appropriately and efficiently and cost-effectively and timely find a potential partner for that business and divested it accordingly.

OPERATOR: David Zimbalist, Natexis.

DAVID ZIMBALIST, ANALYST, NATEXIS: I was wondering if you could talk a little bit about where you see overlap in your either geographically or just from a size and salesforce perspective to the urologists? Is there a good geographic dispersion between the two companies? Can you talk a little bit about where you expect to see synergies in that area?

MARTY EMERSON: Yes, there is -- I will talk about synergies in two areas. I will talk about where I think salesforce combination can bring topline inflection points. We're not looking at the sales and marketing combination as a -- that that in and of itself is a significant synergy in terms of cost. I mean AMS has been in a position with every acquisition we have made where we have come out of every acquisition where the combined company actually allowed for incremental investments in sales and marketing, and I would not be surprised if this does not give us that same opportunity.

But staying just kind of broadly on the area of salesforce coverage, we are direct across the entire -- all of the United States, Canada, Australia, Brazil and all of Western Europe. We have about 250 salespeople in our direct sales organization. That is significantly more than what Laserscope has in terms of its direct salesforce. So it is our expectation that we will very nicely fold in to our sales team, the Laserscope sales team and then look at where there are some pockets of incremental investment opportunities.

Laserscope brings with it a capital expenditure or capital selling expertise with high-priced capital that we don't have any experience in. So we're looking at this as an opportunity to drive synergies elsewhere in the business and actually look for incremental investment opportunities within sales and marketing to continue to drive that inflection point. (multiple speakers)

DAVID ZIMBALIST: You have 250 urology sales reps worldwide?

MARTY EMERSON: 250 sales reps worldwide, most of which have urology in their call point.

Now going to the point of synergies broadly across the P&L, it is our intention that we will have a West Coast technology center that is currently in the San Jose facility. So the great investment and the great talent that Laserscope has in R&D and manufacturing in rated areas of expertise will certainly continue to be a key part of our long-term plan, but it is obvious when you put -- I think when you put companies together like this that there are some synergy opportunities elsewhere in the P&L, and we are certainly going to be looking for those.

DAVID ZIMBALIST: Also, on the reimbursement front, obviously the area of BPH treatment of very various sorts have been somewhat controversial in the reimbursements available in office and hospital. What are your expectations right now with this transaction in how you expect reimbursement differentials between the surgical interventions and GreenLight versus the microwave therapies? And then also given your increased efforts in reimbursement lobbying and what not, can you talk a little bit about how you expect to move forward with that given that you have now both sides of the equation?

MARTY EMERSON: I'm going to go back to two years ago when we made the TherMatrx acquisition at about this time in 2004, and on that acquisition call, we talked about the fact that we did not anticipate that microwave -- in-office reimbursement for microwave therapeutic would ever be higher or stronger than it was in 2004. In absolute terms, that is technically correct. I mean …