When one tiny company takes out another, there can be only one winner.
Accuray (Nasdaq: ARAY ) announced yesterday that it was purchasing fellow radiation-therapy maker TomoTherapy (Nasdaq: TOMO ) for $277 million. Accuray is only a $550 million company itself.
The cash-and-stock deal values TomoTherapy at $4.80 per share, a 31% increase over the previous closing price. Or at least it was before Accuray fell 10% yesterday. Apparently Accuray's investors weren't all that excited about the acquisition.
On one hand, this reminds me of Intuitive Surgical's (Nasdaq: ISRG ) 2003 acquisition of Computer Motion. As a relatively small company at the time, snatching up a competitor and diluting shareholders with an all-stock deal seemed risky. Of course, everything worked out just dandy; since announcing the purchase of Computer Motion, Intuitive Surgical has increased 3,800%!
But the radiation system business isn't the same as the robotic surgery business because there are a couple of really big players in the space. Intuitive Surgical had -- and still does have -- the market all to itself. Accuray is still going to have to compete with Varian Medical Systems (NYSE: VAR ) , Siemens (NYSE: SI ) , and Elekta, and their serious marketing might.
Having two models to sell should help the combined company work more efficiently; the new company will essentially have double the sales force selling each product. But I'm not sure it'll be enough to get Accuray on a level playing field.
TomoTherapy shareholders are clearly the big near-term winners, but the biggest winner in the acquisition may end up being a company like General Electric (NYSE: GE ) or maybe even Intuitive Surgical, which now has the opportunity in a few years to snatch up two radiation-therapy products in one acquisition.
Interested in up and coming technology? Click here to get the Fool's free report, The Only Stock You Need to Profit From the NEW Technology Revolution.