Heska Corporation to Acquire scil animal care, a European Leader in Veterinary Point-of-Care Diagnostics

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LOVELAND, Colo., Jan. 14, 2020 /PRNewswire/ -- Heska Corporation (NASDAQ: HSKA - News; "Heska" or the "Company"), a provider of advanced veterinary diagnostic and specialty products, announced today that the Company has entered into an agreement (the "Agreement") to acquire 100% of the capital stock of scil animal care company GmbH ("scil") from Covetrus, Inc. (NASDAQ: CVET) (the "Acquisition"). Founded in 1998 and headquartered in Germany with operations in France, Italy, Spain and Canada, scil has grown into a veterinary point of care laboratory and imaging diagnostics leader, serving pets and their families across Europe and the globe. With the combination of two of the world's top veterinary diagnostics companies servicing millions of pets through tens of thousands of veterinarians and active analyzers across the globe, Heska expects to¹:

• reach over 25 countries to win a top three position in key markets to capture market share of at least: United States (≈12.5%), Canada (≈13%), Germany (≈40%), Spain (≈40%), France (≈30%), and Italy (≈19%), and to leverage a strong and growing presence in the Czech Republic, the Netherlands, Poland, the United Kingdom, Australia, Latin America and Malaysia;
• include over 500 total employees, with direct sales teams in 10 countries spanning Europe, North America and Australia;
• generate approximately $200 million in sales for 2020, subject to the closing and closing date of the Acquisition and other conditions;
• derive 93% of sales in Core Companion Animal, with total 2020 sales estimated to come from Laboratory (60%), Imaging (23%), Other CCA (10%), and Other Vaccines and Pharma (7%); and
• deliver a favorable geographic sales mix for growth from North America (62%) and greater Europe (37%).

Heska's Chief Executive Officer and President, Kevin Wilson, commented, "I am thrilled to welcome the entire scil animal care team to our Heska family. Heska ended December as a clearly advancing #3 in North America but largely unrepresented overseas. We begin January a much stronger #3 in North America and a solid #1 or #2 in key European markets, with footholds and assets in place to drive more deeply and more broadly everywhere. By joining with Optomed in France (announced last year), CVM in Spain (announced last week), and scil now, we emphatically reaffirm our commitment to our strategic goals to: (1) double the customers and geography Heska serves, (2) double Heska's addressable revenue-product streams and (3) continuing to win in our baseline business. After two focused years of preparation and investment, we now rapidly advance all of these goals in 2020 as a global team capable of globally partnering with individual veterinarians, corporate hospital consolidators, pharmaceutical leaders and diet companies. Into this new global reach, we intend to drive Heska's new products pipeline, including the new Element RC (rotor chemistry), new Element i+ (immunoassay) and upcoming Element UF (urine and fecal), which we continue to expect to reach market later this year."

Transaction Details
Heska will purchase scil for $125 million in cash, subject to working capital and other adjustments as set forth in the Agreement. The Acquisition is expected to close in the next 60 to 90 days, subject to the satisfaction or waiver of closing conditions set forth in the Agreement, including the receipt by Heska of audited financial statements of scil for the years ended December 31, 2018 and 2019 and other customary closing conditions.  The Acquisition is not subject to any financing condition. Piper Sandler acted as the exclusive financial advisor to Heska for the Acquisition.

Heska intends to finance the transaction through a private offering of $125 million of Convertible Preferred Stock ("Preferred Stock") pursuant to a Securities Purchase Agreement (the "Financing Agreement"), dated as of January 12, 2020. The transactions contemplated by the Financing Agreement are expected to close at the time the Company closes the Acquisition, subject to customary closing conditions. 125,000 shares of Preferred Stock ("Preferred Shares") will be issued pursuant to the Financing Agreement, under which the Company expects to exercise its right to convert the Preferred Shares into 1,508,751 shares of the Company's Public Common Stock  following and subject to the receipt of an affirmative shareholder vote at the Company's annual shareholder meeting to increase the number of authorized shares of Public Common Stock; provided however, if such affirmative shareholder vote is not obtained and the conversion of the Preferred Shares does not occur, the Company will pay a cash dividend to the owners of Preferred Shares at an initial per annum rate of 5.75%, which shall increase in subsequent periods up to a maximum per annum rate of 7.25%. The conversion of the Preferred Shares will result in dilution of less than 20% of total shares of the Company's Public Common Stock currently issued and outstanding.   

Heska anticipates costs associated with the Acquisition and other end-of-year transactions related activities will have an impact on 2019 reported earnings. Heska expects the Acquisition to be moderately accretive to 2020 earnings per share. The Company will provide its 2020 full-year outlook on the upcoming 2019 fourth quarter and full-year report late February and will provide a multi-year outlook at its upcoming May 20, 2020 Investor Day in New York.

Webcast Details
Heska CEO and President, Kevin Wilson, will provide more information about this announcement and other growth initiatives at the J.P. Morgan Healthcare Conference at 6:00 p.m. ET on Wednesday, January 15, 2020. Investors and the public may access the live webcast at https://jpmorgan.metameetings.net/events/hc20/sessions/30066-heska-q-a/webcast. A question and answer session will be held following the presentation and can be accessed at https://jpmorgan.metameetings.net/events/hc20/sessions/30066-heska-q-a/webcast. The webcast will be archived shortly after the event, and a replay will be available on the company's website for 90 days following the conference. 

About Heska
Heska Corporation (NASDAQ: HSKA - News) manufactures, develops and sells advanced veterinary diagnostic and specialty healthcare products through two business segments. The Core Companion Animal Health ("CCA") segment represents approximately 85% of revenues, and the Other Vaccines and Pharmaceuticals ("OVP") segment represents approximately 15% of revenues, as of September 30, 2019. CCA segment includes Point of Care Laboratory testing instruments and consumables, primarily under a unique multi-year Reset Subscription model, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings such as in-clinic diagnostic tests and heartworm preventive products. OVP segment includes private label vaccine and pharmaceutical production under third party agreements and channels, primarily for herd animal health.

Forward-Looking Statements
This document contains forward-looking information related to the Company. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as "believes," "plans," "anticipates," "expects," "intends," "strategy," "future," "opportunity," "may," "will," "should," "could," "potential," or similar expressions. All of the statements in this document, other than historical facts, are forward-looking statements and are based on a number of assumptions that could ultimately prove inaccurate and cause actual results to materially deviate from forward-looking statements. Forward-looking statements in this document include, among other things, statements with respect to future sales, sales split percentages, sales geography percentages, market share, and strategic goals, the expected timing of the Acquisition and its funding and its anticipated benefits; the expected conversion of the Preferred Shares into shares of Public Common Stock; anticipated investments and growth; and the number of customers that the Company will be able to acquire and retain.  Such statements are subject to risks and uncertainties, including, but not limited to, uncertainties related to the closing of the Acquisition; the ability to achieve the anticipated benefits of the Acquisition uncertainties related to supplier availability, competing suppliers, any product's ability to perform and be recognized as anticipated, in particular when such product is under development; uncertainties related to Heska's ability to sell and market its products in an economically sustainable fashion, including related to varying customs, cultures, languages and sales cycles and uncertainties with foreign political and economic climates; and the Company's ability to integrate the acquired scil business within its existing operations; and new product development and release schedules. Other factors that could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements are set forth under "Risk Factors" in the Company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.

¹ Information regarding market share and market position is derived from data from publicly available information disclosed by third party sources and Heska internal estimates based on such data, scil data, and Heska's knowledge of the industry. Heska has not independently verified the data from third party sources and cannot assure its accuracy or completeness, and Heska internal and scil estimates have not been independently verified. Data specifically excludes items not point of care, including central reference laboratories and single use "rapid" tests. While Heska is not aware of any misstatements regarding this information, Heska cannot guarantee its accuracy or completeness. Information regarding future sales, sales split percentages, sales geography percentages, and goals are forward-looking statements and actual results can materially differ from those noted, due to several factors, including but not limited to market, currency, integration, supplier, distributor, scil, and Heska performance and those mentioned in Safe Harbor and forward-looking statements disclaimer herein.

SOURCE Heska Corporation

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