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Virtual Radiologic to buy teleradiology rival Nighthawk for $170M

Virtual Radiologic Corp. is becoming the undisputed king of teleradiology. The newly private company in Eden Prairie, Minnesota, said Monday it would buy top rival NightHawk Radiology Holdings Inc. for $170 million, or $6.50 a share.
The deal would give the combined company $278 million in annual revenue and access to 325 radiologists serving 2,700 healthcare facilities in all 50 states.

Virtual Radiologic Corp. is becoming the undisputed king of teleradiology.

The newly private company in Eden Prairie, Minnesota, said Monday it would buy top rival NightHawk Radiology Holdings Inc. (NASDAQ:NHWK) for $170 million, or $6.50 a share.

The deal would give the combined company $278 million in annual revenue and access to 325 radiologists serving 2,700 healthcare facilities in all 50 states.

“Local radiology practices and hospitals are under intense pressure to deliver the highest quality care in the most efficient manner possible,” CEO Rob Kill said in a statement. “The need for expanded access, improved quality and reduced costs is clear. Both vRad and NightHawk have been delivering these benefits in partnership with local radiologists for many years.

“This combination — which brings together both companies’ talented team members and affiliated radiologists — will expand access to much-needed subspecialty expertise, helping to improve the quality of patient care across the United States,” Kill said. “We look forward to working with NightHawk’s talented team to deliver the highest quality radiology service in the country.”

Kill will remain CEO of the newly combined company.

The merger reflects the tumultuous change that has swept the teleradiology industry over the past three or four years. When Virtual Radiologic debuted on Wall Street in 2007, that company and NightHawk dominated the rapidly expanding market of teleradiology: helping hospitals and clinics remotely connect with radiologists across the United States to interpret imaging data.

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But the weak economy slowed that growth, pressuring profit margins and stock prices at both companies. Virtual Radiologic shares, which debuted three years ago at $18 a share, had fallen to $12 a share by the time private equity firm Providence Equity Partners acquired the company in July for $294 million.

NightHawk also struggled mightily. After years of rapid growth, the company lost $48.4 million on sales of $162.5 million in 2009, compared to a profit of $21.6 million on sales of $167.6 million the previous year. NightHawk stock, which hit a high of $25 a share in 2006, has traded below $5 since the beginning of the year.

Virtual Radiologic’s offer of $6.50 a share represented a 100 percent premium over Nighthawk’s Friday closing price of $3.25 a share.

“We are pleased to deliver significant, immediate value to our stockholders through this transaction,” NightHawk CEO David Engert said in a statement.

The companies expect to close the deal in first quarter of 2011.