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Isotope maker Nordion sale faces final hurdle with shareholders

A storage pool for Cobalt-60 isotopes used in Nordion’s devices that sterilize food and medical products.

Daniel Rogall

Nordion Inc., the Canadian medical isotope provider with a long and storied history, is about to become part of an American company.

Created almost seven decades ago as the radium sales department of Eldorado Mining and Refining Ltd., Nordion took over the sale of radioisotopes from the nuclear research facility at Chalk River, Ont., before becoming part of Atomic Energy of Canada Ltd. in the 1950s.

It was part of MDS Health Group for two decades before being spun off as a standalone public company in 2010. And if shareholders give their okay at a meeting in Ottawa on Tuesday, Nordion will move into its next phase – as the subsidiary of a U.S. company based in Chicago.

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In March, after more than a year of studying "strategic alternatives," Nordion's board agreed to a sale to Sterigenics International Inc., a company that specializes in sterilization services for medical device makers, as well as pharmaceutical and food companies.

Nordion currently has two core businesses: selling systems that use radiation to sterilize medical devices and foods, and the processing of medical isotopes for the diagnosis and treatment of diseases. That makes it a good fit both with Sterigenics from both a geographic and product point of view, Nordion president Steve West told investors and analysts on a conference call soon after the deal was announced. "Our products are complementary," he said. "They don't overlap."

If the sale goes through, Nordion will be delisted from the TSX and Nasdaq, although Mr. West promised it will remain a separate entity and keep its name.

Still, it will mark a new era for a public company that was, until 2012, a solid dividend play for investors with a yield of around 4 per cent.

Everything changed in September 2012, however, when Nordion lost a crucial arbitration case against AECL, which still supplies it with isotopes.

The arbitrator ruled that Nordion deserved no compensation for the 2008 shutdown of AECL's program to develop a new nuclear reactor called Maple, which was supposed to replace its aging reactor. Nordion had invested $350-million in the project, and was asking for $1.6-billion in compensation. After losing the case, Nordion cancelled its dividend, and the stock plunged by more than one-third.

After that, however, Nordion cleaned up many of its legal issues – including settling its disputes with AECL. It also sold off its smallest unit, the "targeted therapies" division that sold radiation-based treatments, for $200-million (U.S.). Then, following the strategic review, it found a buyer for the rest of the company.

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Sterigenics will pay $12.25 (U.S.) a share for Nordion stock, a price that was bumped up by 50 cents early in May after another buyer approached the company with a slightly sweeter offer than the original proposal. The new bid will see Sterigenics pay about $758-million for all Nordion shares.

Even if the deal gets the required two-thirds support from shareholders on Tuesday, there are a few more hurdles to overcome before the takeover closes later this year. It still needs Investment Canada approval, and Royal Assent of a federal budget bill which changed the foreign ownership restrictions governing Nordion.

Most analysts have been enthusiastic about the sale. "I think it's a good deal," said Alan Ridgeway of Paradigm Capital Inc. The price is above his valuation of about $10.50 a share, so "they are paying a fair price to shareholders," he said.

He noted that the company will keep operating in Canada after the takeover, so jobs will be maintained here. But he also pointed out that this is yet another mid-cap health care-related investment vehicle that is disappearing from the Canadian markets, following the recent takeovers of many others such as Patheon Inc., Paladin Labs Inc., and CML HealthCare Inc.


Nordion's businesses:

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Medical isotopes

The company processes radioactive isotopes (alternate versions of specific chemical elements) for use in medical testing and treatment. These specific isotopes, which decay quickly and must be delivered in a time-sensitive manner, are the key ingredients used in scanning devices that diagnose heart problems and other diseases. The most important is molybdenum-99, which is produced at just six nuclear reactors around the world. Nordion's supply comes mostly from the aging National Research Universal reactor in Ontario.

Sterilization technologies

Nordion makes devices that are used to sterilize single-use medical products such as syringes, medical gowns and masks. These sterilization devices can also be used to irradiate food, reducing spoiling and insect infestation. In these machines, gamma radiation emitted from the cobalt-60 isotope kills germs and other organisms. Cobalt-60 is produced in several nuclear reactors in Canada, Russia, China and Argentina.

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