On January 10, 2017 Integra LifeSciences Holdings Corporation (Nasdaq:IART), a global leader in medical technology, reported that it has signed a definitive agreement to acquire Derma Sciences Inc. (Nasdaq:DSCI) for a price of $7.00 per share of Derma Sciences common stock in cash (Press release, Integra LifeSciences, JAN 10, 2017, View Source [SID1234517585]).

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"Derma Sciences’ amniotic tissue-based platform technology further broadens Integra’s regenerative technology capabilities and builds upon our 3×3 wound care strategy," said Peter Arduini, Integra’s president and chief executive officer. "The addition of a complementary portfolio of wound care products, including an amniotic product with reimbursement in the wound care channel, allows us to further drive scale in the advanced wound care market."

Under the agreement, Integra will commence a tender offer to purchase all of the outstanding shares of Derma Sciences common stock for $7.00 per share in cash. Integra will also offer to purchase the outstanding shares of Derma Sciences preferred stock for an amount equal to its liquidation preference per share. The tender offer will be followed by a merger of Derma Sciences with a newly formed subsidiary of Integra. The companies expect to complete the transaction at the end of the first quarter of 2017, subject to customary closing conditions, including U.S. antitrust clearance and the tender of a majority of outstanding shares of Derma Sciences common stock and preferred stock. Integra expects to use its existing credit facility to finance the transaction.

BofA Merrill Lynch acted as exclusive financial advisor and Latham & Watkins LLP acted as legal advisor to Integra.

Preliminary Fourth Quarter and Full Year 2016 Financial Results

Integra is also announcing today that it expects its fourth quarter 2016 total revenue to be approximately $256 million, resulting in full-year 2016 revenue of approximately $992 million, at the low end of the previously provided guidance range. Integra expects to report fourth-quarter 2016 organic revenue growth, which excludes the impact of foreign currency changes and revenue from discontinued and acquired products, of approximately 7.0%, and full-year 2016 organic growth of approximately 9.0%.

The Company expects fourth-quarter 2016 GAAP and adjusted diluted earnings per share to be at or above the mid-point of the prior guidance range of $0.32 to $0.35 and $0.50 to $0.53 post-stock split, respectively. This implies full-year 2016 GAAP and adjusted diluted earnings per share at or above the mid-point of the range of $0.91 to $0.94 and $1.73 to $1.77 post-stock split, respectively. At this point during our year-end close activities, the Company is not able to provide a breakdown of the components of the non-GAAP adjustments, but preliminarily estimates these to total $0.82 per share for the full year 2016.

Operating cash flow, excluding approximately $43 million of accreted interest payment associated with the 2016 Convertible Notes that matured in December 2016, and free cash flow were strong. The Company expects to be slightly above the high end of the previous guidance range for both metrics, above $145 million operating cash flow and above $105 million for free cash flow. The difference between operating cash flow and free cash flow is a preliminary estimate of $40 million for capital expenditures.

2017 Financial Guidance

The Company is also providing preliminary 2017 revenue and adjusted earnings per share guidance for 2017. Integra expects full-year 2017 organic revenue growth to be between 7% and 8.5%. This implies a revenue range of approximately $1.05 billion to $1.07 billion, inclusive of an unfavorable impact from foreign currency of approximately one percent at current exchange rates.

Full-year 2017 earnings per share are expected to grow low double digits, exclusive of the unfavorable impact expected from foreign currency. The Company expects full-year 2017 adjusted earnings per share to be in the range of $1.91 to $1.97, taking into account a two cent negative impact from foreign currency. The Company is still in the process of reconciling estimates for full-year 2017 GAAP EPS projections and will provide this information and other additional information when full 2016 financial results are reported on February 22, 2017.

This preliminary 2017 guidance does not include the acquisition of Derma Sciences, Inc., which has not closed. Assuming a closing date at the end of the first quarter of 2017, Integra expects the acquisition to add approximately $65 million in revenue and to be dilutive to adjusted earnings per share by approximately three cents during 2017. The acquisition is expected to turn accretive to adjusted earnings in 2018, and to reach our return on invested capital hurdle by the end of the third year.