Advanced NMR enters as white knightto spoil Raytel's hostile bid for MDI

Advanced NMR envisions MDI as hub of MR consolidation

Raytel's raucous five-month effort to take over New England mobileMR provider Medical Diagnostics was defeated May 3 with MDI'sacceptance of a friendly $28 million counter-offer from AdvancedNMR of Wilmington, MA.

Under terms of the tentative agreement, ANMR will operate MDIas a wholly owned subsidiary. No change in leadership is contemplated,according to Advanced NMR chairman Jack Nelson. MDI CEO John Lynchand two unnamed MDI officers will join ANMR's board of directors.

Advanced NMR's white-knight entry promises a windfall for MDIstockholders. They will receive $8 per share through a combinationof cash, Advanced NMR stock and warrants to purchase AdvancedNMR shares in the future. Stockholders from both companies willvote on the proposal in mid-August, Nelson said.

Raytel had increased its tender offer 75¢ to $5.75 pershare just days before the ANMR buyout was disclosed. At thatpoint, the San Mateo, CA, imaging services firm controlled about28% of MDI voting stock. CEO Richard Bader acknowledged on April29 that the takeover bid was over. The bid was formally withdrawnMay 4.

Lynch greeted the friendly takeover with relief.

"We certainly have made the best of a bad situation,"he told SCAN.

The acquisition by ANMR comes as a surprise to anyone familiarwith the two companies' financial performances. MDI generatedsales over $20 million in 1994. It owns two freestanding facilitiesand 10 mobile MRI systems serving 29 hospitals. The company'sfocus on highly regulated certificate-of-need states contributesto its profitability, Lynch said.

Advanced NMR's specialized MRI components have only recentlybroken into routine clinical use. Sales increased nearly three-foldin 1994, to $5.2 million, on the strength of echo-planar imagingsoftware and neurological head coils, sold mainly through a salesalliance with GE Medical Systems. Its Aurora dedicated MRI breastscanner is a potential sales success waiting in the wings (SCAN3/15/95).

The differences in the companies' sizes left Advanced NMR'sNelson to wonder at the irony of the transaction.

"The little fish swallowed the big fish," Nelsonsaid.

Chemical Connecticut, an affiliate of Chemical Bank in Stamford,CT, financed the deal. The loan was sufficient to cover the purchaseprice and provide about $9 million in cash. A $5 million creditline was also included, Nelson said.

Nelson plans to use his new acquisition as a hub for more expansioninto mobile imaging services.

"MDI is an industry powerhouse. It is in an ideal positionto snare survivors in mobile MRI as industry consolidation continues,"Nelson said.

The two companies share a strategic view that is more compatiblethan those of MDI and Raytel, according to Lynch, who is stillfeeling the effects of defending his company against the Raytelbid.

"When Raytel made their presentation to our board in December,they described the industry as an enigma -- a view that didn'tgive us a lot of comfort," Lynch said.

Lynch prefers ANMR's pioneer position in developing echo-planarimaging technology.

"If I've had a frustration from the operating side ofthe business, it has been the difficulty in getting some of thenewer applications into the real world," he said.

ANMR has also had problems bringing new applications to market.It was saved from bankruptcy in 1993 by a reorganization and aninitial public offering for a new subsidiary supporting MR mammographyR&D efforts (SCAN 2/10/93). Financial problems stemmed fromthe slow commercialization of InstaScan, its high-field EPI product,according to industry observers.

MDI sites will be used as a community-based proving groundfor new ANMR products, Nelson said.

"Exposure creates need, and our new MRI mammography systemcan be exposed to hundreds of New England doctors by its use inour new sites," Nelson said.

A working model of the Aurora MRM scanner was shown at the1994 Radiological Society of North America conference (SCAN 11/23/94).Advanced Mammography Systems, the ANMR subsidiary that developedthe 0.5-tesla system, filed for Food and Drug Administration 510(k)clearance in February.

Only a few MDI imaging sites equipped with 1.5-tesla GE Signasare capable of operating InstaScan, Lynch said. On the mobileside, ANMR's functional neuroimaging coil is compatible with anyscanner in the fleet. Lynch also sees the mammography productfitting in from a strategic perspective.