MedChem Products Bids to Buy Luther Medical : Merger: Analysts say the $9.8 million to $11.2 million takeover offer, which has been labeled as ‘friendly,’ might make sense for the financially troubled Tustin company.

A Massachusetts-based medical products company has made an unsolicited bid to acquire Luther Medical Products in Tustin for up to $11.2 million, the companies said Thursday.

MedChem Products Inc. in Woburn, Mass., has offered between $3.50 and $4 per share, or between $9.8 million and $11.2 million, for Luther’s 2.8-million outstanding shares. MedChem said that the deal might include a combination of cash and MedChem stock.

Shares of Luther Medical, which closed up 35 cents Thursday to $3.25 in Nasdaq trading, had traded for as much as $10 in 1992. However, its stock has been hovering under $4 since last summer.

Luther’s board of directors will review MedChem’s offer during an upcoming board meeting, said David Rollo, Luther president and chief executive officer. MedChem’s president and chief executive officer, Ed Quilty, characterized Tuesday’s offer as “friendly,” but said that no direct discussions occurred before the offer was made.

Luther’s catheter business has “natural synergies” with MedChem’s Gesco Inc. subsidiary based in San Antonio, Tex., a catheter business that generates about 40% of MedChem revenue. Gesco reported a $7.6-million net profit on $32 million in revenue for the fiscal year ended Aug. 31. MedChem acquired Gesco two years ago.

Rollo said that “while the suggested range in MedChem’s proposal represents a premium over Luther’s current trading price . . . we must balance this against the longer term values that Luther Medical may be capable of achieving.”

MedChem’s bid, Rollo said, suggests “that some of Luther Medical’s recent successes in the market place and in receiving FDA approvals have not escaped the notice of our competitors.”

Industry analysts said the deal might make sense for financially troubled Luther, which reported a $286,664 net loss on $679,197 in revenue for the third quarter ended March 31.

“Usually, we’re not extremely impressed with most of the mergers that occur,” said David Anast, publisher of the Costa Mesa-based Biomedical Market Newsletter. “But given Luther’s history of financial difficulties, it would appear to be a win-win situation.

“Luther’s got to have major league distribution for its products if it’s ever to dig itself out of the hole it’s in,” Anast said. “And this deal would appear to have the potential to help it grow much larger.”

“If you look at the health care business in general, these types of affiliations increasingly make sense,” said Quilty, a former executive at McGaw Inc., a manufacturer of intravenous solutions in Irvine. “It will be really hard for small companies in the future to move forward.”

Quilty declined to say whether MedChem would consolidate Luther and Gesco in Texas if a deal is completed. “At this point I don’t think we know enough about it to comment on that aspect,” Quilty said.

Luther, with 41 employees at its headquarters in Tustin, designs, manufactures and markets catheter systems. Ron Luther, its founder and chairman, is believed to hold more patents related to catheter technology than does any other individual.

The company recently won Food and Drug Administration approval to market a new, Teflon-covered catheter. The product was the third Luther device approved by the FDA since April.

Quilty said he views Ron Luther as “a significant asset for the company. . . . He holds more patents than anyone else in the industry. I’ve known of Ron Luther for years.”

MedChem, which has 150 employees, saw its shares close at $6.35, up 25 cents Thursday in New York Stock Exchange trading.

MedChem-Luther: Proposed Merger

Luther Medical, a Tustin-based medical products company, has received a purchase offer, valued between $9.8 million and $11.2 million, from MedChem Products, a Massachusetts-based competitor. Details on the two companies:

Luther Medical * Headquarters: Tustin * Founder/chairman: Ron Luther * Products: Intravascular catheter systems and neuro-diagnostic products * Employees: 41 * Nasdaq: LUTH

MedChem Products * Headquarters: Woburn, Mass. * Chairman: Dr. James F. Martin * Products: Specialty medical products, including intravascular catheters and topical hemostats * Employees: 150 * NYSE: MCH

Stock Shows Improvement

Luther’s stock closed up after MedChem’s purchase offer of $3.50-$4 per share. The stock had been trading in the $3 neighborhood or lower for several months. Monthly closing stock prices:

Thursday’s close: $3.25

Negative Earnings

Although Luther has reported a string of losses, it recently received Food and Drug Administration approval for three new products, prompting MedChem’s purchase offer.

Revenue (in millions): 1990: $3.1 1991: $2.4 1992: $2.8 1993: $4.1 1994: $2.5 (year to date)

Net Income: 1990: $16,000 1991: -$771,894 1992: -$939,337 1993: -$44,510 1994: -$565,564 Sources: Dow Jones, Bloomberg Business News, Corporate Relations Group; Researched by JANICE L. JONES/Los Angeles Times