Danaher Corp. may have the largest cash stockpile in its history after selling its Pacific Scientific aerospace unit, fueling Chief Executive Officer Lawrence Culp’s hunt for acquisitions in businesses such as dental and testing equipment.
The $685 million sale to Christchurch, England-based Meggitt Plc announced today will add to Danaher’s reserves, which was $1.64 billion in October. Based on those figures, the total would surpass the previous high of $1.72 billion at the end of 2009, according to data compiled by Bloomberg.
Danaher has been seeking to exit “smaller niche businesses for some time, and they’ve gotten a decent price and it helps their war chest,” said Ajay Kejriwal, a New York-based analyst with FBR Capital Markets.
Danaher’s plan to expand its core businesses through acquisitions follows the purchases of more than a dozen companies last year. Including free cash flow from the next four to six quarters, the Washington-based company will have about $4 billion to deploy, Culp said at the annual investor meeting in December.
Danaher, which makes products from microscopes to dental instruments and water-treatment systems, may lead North American industrial and electrical-equipment companies in acquisitions this year, Deane Dray, a Citigroup Inc. analyst in New York, said in a note last week.
At the company’s outlook meeting last month, Danaher “was adamant that it has the management depth and talent to handle more acquisition integration,” Dray said. “It also left the door open for acquiring a new platform and for the use of equity if the right transaction were to come along.”
Pacific Scientific Sales
Meggitt Plc, the maker of engine-monitoring systems for Airbus SAS and Boeing Co. planes, agreed to buy Pacific Scientific to expand its range of fire-suppression products. Adding the unit will allow Meggitt to bundle more products for aircraft including Boeing’s composite-plastic 787 Dreamliner and the Airbus A380 superjumbo as production accelerates.
Meggitt fell as much as 4.8 percent in London trading, the largest intraday decline since May 25, before closing at 367.6 pence. Danaher climbed 27 cents to $47.42 at 4:15 p.m. in New York Stock Exchange composite trading.
Pacific Scientific generated $378 million in sales in 2010 and contributed 7 cents to Danaher’s earnings per share, the company said in a statement. Danaher, which is scheduled to report fourth-quarter and full-year earnings on Jan. 27, posted profit last year of $1.15 billion, or $1.73 a share, on sales of $11.2 billion.
“We expect there will be chatter that Danaher is storing capital for a large deal,” Nigel Coe, a New York-based analyst with Deutsche Bank, wrote today in a note to investors. While that’s possible, “negotiations to exit aerospace and defense began in mid-2010, and portfolio refinement is a normal process for a mature conglomerate,” he said.