ConvaTec Weighs Sale or IPO as Health Care Firms Seek Tax Advantage

Another health-care tax-inversion candidate could hit the block later this year.

The private-equity owners of ConvaTec, a medical-supplies company that was once a unit of Bristol-Myers Squibb Co., have been approached by investment bankers and potential buyers to discuss a sale that could value the company at $8 billion to $9 billion, people familiar with the matter said.

Avista Capital Partners and Nordic Capital won’t start a formal sale-process until later this year at the earliest, and are also considering an initial public offering for the Luxembourg-domiciled company, the people said, asking not to be identified discussing private information.

ConvaTec would offer an American acquirer the ability to shift its legal domicile out of the U.S., where the 35 percent corporate income tax rate is the highest in the developed world. Such transactions, known as “inversions,” are sweeping the U.S. healthcare industry. Medtronic Inc. (MDT) agreed last month to buy Covidien Plc (COV) for $42.9 billion and take its Irish tax address, and giants including Pfizer Inc. and Walgreen Co. are contemplating moves.

While ConvaTec is willing to wait until next year to sell or start a stock offering, the two owners have made it clear to advisers that they would sell at the right price sooner, one of the people said.

One potential buyer is 3M Co. (MMM), one of the people said, though 3M is probably too large a buyer to use ConvaTec to change its tax domicile. Such deals typically require the foreign company’s shareholders to end up with at least 20 percent of the stock of the combined firm.

Increasing Inversions

A message left with ConvaTec’s media line wasn’t immediately returned, while Amanda Heravi, Avista’s head of investor relations, declined to comment. A Nordic Capital spokeswoman also declined to comment.

Donna Fleming Runyon, a spokeswoman for 3M, didn’t return a call seeking comment.

Pfizer Inc. offered to acquire AstraZeneca Plc for $117 billion, in part to take advantage of the target’s lower tax base. The approach has so far been rebuffed. AbbVie Inc. is seeking to acquire Shire Plc for $46.5 billion for some of the same reasons.

Takeovers of health-care products companies have more than doubled in value this year to $74 billion, data compiled by Bloomberg show. After Medtronic’s purchase of Covidien, the largest such deal was Zimmer Holdings Inc.’s $13.4 billion purchase of Biomet Inc. from a group of private-equity investors.

If Avista and Nordic find a buyer for ConvaTec, it would end almost seven years of ownership. The company, which makes surgery devices like colostomy pouches and bandages, was spun out from Bristol-Myers Squibb in 2008 and sold to its current owners for $4.1 billion.

ConvaTec’s earnings before interest, taxes, depreciation and amortization may exceed $600 million this year, one of the people said. Last year, adjusted Ebitda reached $549.7 million, according to company financial statements. Excluding adjustments such as the impact of foreign exchange losses, Ebitda was $502.5 million.

To contact the reporters on this story: David Welch in New York at dwelch12@bloomberg.net; David Carey in New York at dcarey13@bloomberg.net; Kiel Porter in London at kporter17@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net Elizabeth Wollman

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