Integral Diagnostics seeks to create $950m pure-play imaging firm through Capitol merger

Integral Diagnostics and Capitol Health are looking to merge into a circa-$950m pure-play imaging company, and analysts like what they see.

Integral Diagnostics and Capitol Health have national networks of imaging centres.

Integral Diagnostics has lobbed a scrip merger for fellow imaging company Capitol Health, with the Andrew Demetriou-led board of Capitol backing the proposed deal.

The tie up would create a $950m-plus imaging company, bringing together Integral’s more than 90 sites which provide services such as MRI scans and mammography, with Capitol Health’s more than 60 medical imaging practices nationally.

Capitol shares were up more than 12 per cent at 27.5c on the news on Monday, while Integral stock was 5.3 per cent lower at $2.40.

The proposed merger would offer Capitol shareholders 0.12849 Integral shares for each Capitol share, with Integral’s current shareholders to own 63 per cent of the company post-merger.

The Capitol board intends to unanimously support the merger, subject to due diligence, the company told the ASX.

Integral managing director Dr Ian Kadish said the businesses were a good fit.

“The merger would create a scalable platform that would unlock significant value for stakeholders of both Integral and Capitol, including patients, doctors and shareholders,’’ Dr Kadish said.

“The potential combination of the two businesses is compelling and logical and would see us create a leading player in Australian and New Zealand diagnostic imaging, with the scope and scale to transform the industry.

“Integral has benefited significantly from acquisitions over time and the proposed merger is one that would be transformative, driving a step-change in Integral’s scale, capabilities and clinical outcomes.

“We believe now is the right time to come together and we look forward to working closely with the Capitol team to agree and consummate this transaction that will better position both our businesses for the exciting future ahead.”

Integral said that based on its closing price of $2.54 on June 14, the bid values Capitol shares at 32.6c each, compared with Capitol’s price of 24.5c before the bid, and 27.5c in afternoon trade on Monday.

“If it proceeds, the proposed merger would capitalise on the established stand-alone and highly

complementary capabilities of Integral and Capitol to create a market leader in the Australian and New Zealand diagnostic imaging market, delivering significant strategic and financial benefits,’’ Integral told the ASX.

Integral said its expects at least $10m in annual synergies to flow from the deal, which would also allow the company to invest further in costly, higher-end imaging technologies such as MRI, PET and CT machines.

RBC Capital Markets said in a note to clients the merger made sense.

“We view the two businesses as highly complementary with minimal geographic overlap, and therefore do not expect any Australian Competition and Consumer Commission issues,’’ RBC said.

“We would expect there to be some procurement and capex savings from a merged business, but would not expect there to be much operational cost savings.

“We believe the proposal is an attractive offer for Capitol shareholders given the implied premium to the last close and our price target, and we view the expected double-digit earnings per share accretion for Integral shareholders as a reasonable return.’’

Originally published as Integral Diagnostics seeks to create $950m pure-play imaging firm through Capitol merger