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.
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