Why Cepheid Is Skyrocketing Today

By Markets Fool.com

Image source: Getty Images.

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What happened

Shareholders ofCepheid(NASDAQ: CPHD), a molecular diagnostics company,are having a pleasant start to the short trading week. News broke this morning that the company has agreed to be acquired by Danaher (NYSE: DHR) for a healthy premium, which has pushed shares up by 52% as of 11:45 a.m. EDT.

So what

Danaher has offered to by Cepheid for $4 billion in cash, valuing shares at $53 each. That represents a premium of 54% based on the stock's closing price on September 2.

John Bishop, Cepheid's CEO, stated that the deal will allow Cepheid to reach more customers and patients faster than the company could on its own.

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Danaher's CEO Thomas Joyce also offered up some positive commentary related to the acquisition, stating:

We expect Cepheid to be an excellent complement to our existing Diagnostics businesses and to expand our runway for growth across the platform. Cepheid's extensive installed base, test menu and innovative product offering contribute to its market leadership in molecular diagnostics and we expect it to strengthen our position in this high-growth segment.

Both companies' boards have unanimously approved the deal. If Cepheid's shareholders also give the acquisition the green light, then the deal is expected to close by the fourth quarter of this year.

Now what

Cepheid was expecting to generate roughly $625 million in total revenue in 2016, the vast majority of which wasrecurring, so perhaps it's no surprise Danaher was interested in acquiring the business. After all, Danaher has a long history of making acquisitions and then applying the "Danaher Business System" to improveefficiencies and expand profitability.

Danaher is projecting that this deal will be slightly dilutive to its GAAP net earnings per share in the year following the closing. However, on a non-GAAP basis, EPS is expected to rise by about $0.05. Looking five years out, the company is projecting roughly $0.30in EPS accretion.

Congratulations are in order to Cepheid's long-term investors. Those who bought at the IPO in late 2000 and held on to today have enjoyed 16 years of market-thumping returns.

CPHD data by YCharts.

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Brian Feroldi has no position in any stocks mentioned.Like this article? Follow him onTwitter, where he goes by the handle@Longtermmindset,or connect with him on LinkedIn to see more articles like this.

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