Qiagen of the Netherlands has announced plans to merge with the USA’s Digene Corp, a fellow diagnostics firm, in a cash-and-stock deal that is valued at $1.6 billion.

Under terms of the agreement, which is being done as an exchange offer, Digene will become a subsidiary of Qiagen and the former’s stockholders can receive for each share they hold either $61.25 in cash (a premium of around 37%) or 3.545 shares in Qiagen stock. This means that that the total consideration issued for Digene stock consists of 55% cash and 45% Qiagen stock and the Dutch group’s shareholders will own around 78% of the combined company.

The new entity expects to have more than $350 million of molecular diagnostics revenues and more than $800 million in overall sales in 2008, while pre-tax cost savings will be in the region of $35-$45 million per year. The acquisition is expected to dilute Qiagen’s adjusted earnings per share by $0.03-$0.04 in the fourth quarter of 2007 but will boost EPS in 2008 by $0.02-$0.04 and be “significantly accretive to earnings thereafter”.

One of drivers of future growth will be Digene’s HPV (human papillomavirus) Test, which screens for the presence of high-risk types of the virus that cause cervical cancer and it is the only test that has been approved by regulators in both the USA and Europe. This is one of the largest and most rapidly expanding market segments in women's health, on the back of Merck & Co’s Gardasil and GlaxoSmithKline’s Cervarix vaccines, and the market for HPV tests is expected to be worth more than $1 billion.

Qiagen’s chief executive Peer Schatz claimed that the transaction “creates significant value for our shareholders and instantaneous market and technology leadership in what is one of the most exciting areas of life sciences and healthcare: molecular diagnostics.” His counterpart at Digene, Daryl Faulkner, noted that the firms have had a successful partnership for over a decade and “by accelerating this existing and productive working relationship, we anticipate future growth opportunities and have already begun to develop new products.”