Cantel Medical Acquires Crosstex International

question 66

Essay

Cantel Medical Acquires Crosstex International
On August 3, 2005, Cantel Medical Corporation (Cantel), as part of its strategic plan to expand its infection prevention and control business, announced that it had completed the acquisition of Crosstex International Incorporated (Crosstex). Cantel is a leading provider of infection prevention and control products. Crosstex is a privately owned manufacturer and reseller of single-use infection control products used primarily in the dental market.
As a consequence of the transaction, Crosstex became a wholly owned subsidiary of Cantel, a publicly traded firm. For the fiscal year ended April 30, 2005, Crosstex reported revenues of approximately $47.4 million and pretax income of $6.3 million. The purchase price, which is subject to adjustment for the net asset value at July 31, 2005, was $74.2 million, comprising $67.4 million in cash and 384,821 shares of Cantel stock (valued at $6.8 million). Furthermore, Crosstex shareholders could earn another $12 million payable over three years based on future operating income. Each of the three principal executives of Crosstex entered into a three-year employment agreement.
James P. Reilly, president and CEO of Cantel, stated, "We continue to pursue our strategy of acquiring branded niche leaders and expanding in the burgeoning area of infection prevention and control. Crosstex has a reputation for quality branded products and seasoned management." Richard Allen Orofino, Crosstex's president, noted, "We have built Crosstex over the past 50 years as a family business and we continue growing with our proven formula for success. However, with so many opportunities in our sights, we believe Cantel is the perfect partner to aid us in accelerating our growth plans."
-What factors might cause Crosstex's net asset value to change between signing and closing of the agreement of purchase and sale?

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Definitions:

Brake Fluid

A hydraulic fluid used in brake systems to transfer force into pressure.

Master Cylinder

The main component in a vehicle's brake system that converts pedal pressure into hydraulic pressure to apply the brakes.

Hygroscopic

A characteristic of brake fluid by which it absorbs moisture. Over time, this can damage the hydraulic system components.

Proportioning Valve

A valve in a vehicle's brake system that regulates the pressure between the front and rear brakes to prevent rear wheel lockup during braking.