Danaher Soars Amid $6.8 Billion Acquisition of Beckman Coulter

Danaher CEO Lawrence Culp
Danaher Chief Executive Officer Lawrence Culp. Photographer: Jeffrey J. Nenarel/Danaher via Bloomberg

Danaher Corp. climbed to the highest price since 1980 after agreeing to pay $6.8 billion for diagnostic-equipment maker Beckman Coulter Inc. amid higher demand for medical tests from an aging U.S. population.

Danaher, a maker of microscopes and water-treatment systems, will start a tender offer of $83.50 a share for 76-year-old Beckman Coulter’s outstanding stock within seven days, the company said today in a statement. The deal’s total valuation includes available cash and net debt, Danaher said.

“Clinicians and patients are looking for better outcomes,” Chief Executive Officer Lawrence Culp said on a conference call to discuss the purchase. “Better information upfront is going to drive that. The aging of our population in the West certainly was a driver here for us.”

Danaher expects Beckman Coulter to add as much as 10 cents to adjusted earnings per share this year and as much as 30 cents to net per-share earnings in 2012, according to a presentation on the company’s website. The Brea, California company will be folded into Danaher’s Life Sciences division, which makes diagnostic equipment and posted 2010 revenue of $2.3 billion, or about 17 percent of the company’s total sales.

Danaher, based in Washington, added $1.05, or 2.2 percent, to $49.03 at 4:15 p.m. in New York Stock Exchange composite trading. The increase capped a 38 percent gain in the past 12 months and was the largest since July 1980, the earliest date recorded in Bloomberg data. Beckman Coulter climbed $7.48, or 10 percent, to $82.65.

Medical-technology businesses will make up about 47 percent of Danaher’s sales after the acquisition, and Culp said that figure would probably drop to 40 percent over time.

‘High-Water Mark’

“We’re at a little bit of a high-water mark here, I suspect, but it’s temporary,” he said on the call. “There’s no change in who we want to be, who we are five to 10 years down the road.”

Culp said in December that the company would have about $4 billion for acquisitions during the next four to six quarters. So far in 2011, Danaher announced one other purchase agreement, of Belgian software maker EskoArtwork for about $470 million.

Following the completion of that deal and the Beckman Coulter purchase, Danaher will make mostly “bolt-on acquisitions” that complement existing businesses outside of life sciences, Culp said on the call.

“We’re going to continue to be active but on a moderated basis,” he said.

Acquisition Funding

Danaher said about 25 percent of funding for the Beckman Coulter acquisition will be cash on hand, about 60 percent will be new and acquired debt and 15 percent will be equity. The deal should be completed in the first half, the companies said.

Danaher has found $250 million in cost savings and “synergies” it can produce from the deal, Culp told analysts. The two companies share some customers and Danaher can help accelerate Beckman’s growth in China, among other emerging markets outside the U.S., he said.

Danaher has “tremendous opportunity to unlock value at Beckman Coulter,” Culp said. “We believe this will be a high-fit, high-opportunity deal.”

Demographic trends provide a “tailwind” for the health-care industry, Aaron Vaughn, a St. Louis-based analyst with Edward Jones, wrote in a note to clients.

“The over-60 age group will be one of the fastest-growing age groups over the next couple of decades, and utilization of health-care products such as prescription drugs and devices increases with age,” wrote Vaughn, who has a “hold” rating on the shares.

45% Premium

Danaher’s offer represents a premium of about 45 percent to Beckman Coulter’s closing price on Dec. 9, the day before speculation of a sale began, Danaher said.

The average premium paid for more than 160 U.S. medical instrument companies in the past five years, based on the average share price in the 20 days before an announcement, was 40 percent. On that basis, Danaher’s premium for Beckman would be 15 percent.

The deal’s multiple of 7.1 times Beckman Coulter’s earnings before interest, taxes, depreciation and amortization compares with a median multiple of 26 in more than a dozen acquisitions, according to data compiled by Bloomberg.

Beckman Coulter traces its roots to the mid-1930s when Arnold Beckman made his first pH meter to measure the acidity of lemon juice. The company manufactures products used to diagnose diseases and in the development of new drugs, including centrifuges, hematology analyzers and cell sorters. It had about 11,800 employees at the end of 2009, when it posted about $3.26 billion in sales.

CEO’s Departure

Beckman Coulter said in September that Chief Executive Officer Scott Garrett had resigned and appointed J. Robert Hurley as interim president and CEO while it searched for a successor.

The departure of Garrett, who had been CEO for more than five years, followed a drop in Beckman’s stock price and second-quarter earnings that fell short of analysts’ estimates.

Beckman received a warning letter during the summer from U.S. regulators saying the company marketed a test for heart problems without proper clearance.

The warning letter from the Food and Drug Administration involved a test called AccuTnI, which measures a protein called tropinin that is a marker for heart problems. The FDA letter said the company had made “significant modifications” to the product without getting the required regulatory clearance.

Danaher was competing with two private-equity groups, one of which included Apollo Global Management LLC, to acquire Beckman Coulter, people familiar with the matter said in January.

‘More Than Fair’

Bids for Beckman came in last week, according to a person familiar with the matter. The Apollo-led group put in a per-share bid in the $70s and was told later in the week that its offer was too low, the person said. The group decided not to raise the offer, the person said.

An Apollo spokesman didn’t immediately return phone calls seeking comment.

“A sale price in the low $80s is more than fair,” Doug Schenkel, a Boston-based analyst with Cowen & Co., wrote in a note to clients.

While Diagnostic Products Corp. and Dade Behring Holdings Inc. were acquired at higher multiples in 2006 and 2007, respectively, “those deals were done in better times and those assets were in better standing, given Beckman Coulter’s recent challenges,” Schenkel wrote. He has a “neutral” rating on the shares.

Goldman Sachs Group Inc. and Latham & Watkins LLP are advising Beckman Coulter, and Morgan Stanley is advising Danaher.


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