In Swallowing Cytyc, Hologic Paints Too Rosy A Picture

Hologic (HOLX) swallows Cytyc (CYTC) for cash and shares. As this comment was composed, the market dropped 10% for Hologic and Cytyc was surging almost 20%.

At the same time, management is promising the acquisition will be slightly accretive in the first year following the merger. This probably means they will try to swallow all the tough write offs and expenses this year.

Management has also made some very big statements about how lovely everything will be. No anticipated layoffs at the operating level. Savings in marketing and logistics and increased international efforts. Smooth sailing all the way through.

Here are some realities about sales and marketing to the medical business. You will probably not impress the medical field just because you are merging. These guys get sued a lot, and errors and omissions insurance is a really big thing. So when the sales person breezes in with the next new and wonderful product or service change, some practitioners actually want to talk to a lawyer.

Additionally, when something is working well, why change it? Change is risk without additional benefits. Corporate synergies are boardroom concepts that do not always play out in hospitals and imaging facilities.

Management is also making a big thing about international growth. Currently the combined entity generates approximately 15% of revenues from international. They are laying claim to an expanded presence in up to 125 countries. This has to mean underdeveloped countries, which traditionally do not have significant money for health care. When underdeveloped countries do spend on health care, women's issues are not given a high priority.

Hologic sees the play as a market dominance move. Not one word about the strength of R&D and what the future holds. Today's drum beats too loudly and drowns out anything about tomorrow.

HOLX 1-yr chart: