Is Share Dilution A Certainty For BioScrip Inc. (NASDAQ:BIOS)?

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BioScrip Inc. (NASDAQ: BIOS) is selling new shares to raise funds to finance the recently announced deal to acquire a provider of home infusion solutions called HS Infusion Holdings or Home Solutions. The sale of new shares will dilute value for existing shareholders but the management appears to say that the impact is nothing compared to the anticipated benefits of acquiring Home Solutions.

It will cost BioScrip Inc. (NASDAQ: BIOS) $85 million to acquire Home Solutions for a combination of cash and stock. The cash component far outweighs the equity component of the buyout transaction. BioScrip said that $80 million of Home Solutions buyout price will be met in cash and the remaining $5 will be settled through equity. There will be additional considerations to shareholders of Home Solutions if certain milestones are met after the transaction is completed.

Sale of 40 million shares

BioScrip is offering 40 million shares to the public to help it raise funds to finance the cash component of the Home Solutions buyout transaction. The company also said that it was seeking to raise funds to go into repayment of some of its outstanding credit and for general corporate purposes. As such, to maximum the amount of funds that could be raised through the equity sale, the company has granted underwriters the opportunity to purchase additional 5.2 million shares for potential oversubscription. The shares are being offered at $2 apiece and the net proceeds from the sale of the 40 million shares are expected to be $73.38 million. That is after BioScrip has deducted commissions and other offering expenses. In case the additional 5.2 million shares are also sold, BIOS expects to net $83.15 million in net proceeds.

Impact of the acquisition on BioScrip Inc. (NASDAQ: BIOS) shares

Despite the dilutive effect on the stock of BioScrip Inc. (NASDAQ: BIOS) because of the secondary IPO, the management expects significant topline and bottom-line improvements after the deal is sealed.

Home Solutions is expected to boost BioScrip’s topline by more than $109 million, which is why the combined company is expected to have over $1 billion revenue. The acquisition is also expected to pave way for cost-saving of between $14 and $17 million after 12-18 months after the transaction is closed. The cost-saving is expected to come from supply chain efficiencies, economies of scale and infrastructure optimization. The impacts of these savings are expected to be felt on the bottom-line, which is anticipated to improve.

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