Baxter Agrees to Buy Sweden’s Gambro for $2.8 Billion

Baxter to Acquire Gambro for $4 Billion to Add Dialysis Products
Baxter, founded in 1931 as the first maker of commercially prepared intravenous solutions, according to its website, has risen 33 percent this year, giving the company a market value of about $36.1 billion. Photographer: Brent Lewin/Bloomberg

Baxter International Inc., the world’s second-largest maker of dialysis products, agreed to buy Swedish competitor Gambro AB for 18.3 billion kronor ($2.8 billion) to expand its kidney-equipment business.

Gambro had about $1.6 billion in sales last year, Deerfield, Illinois-based Baxter said today in a statement. Gambro is jointly controlled by Sweden’s EQT Partners AB and Investor AB, the investment firm controlled by Sweden’s billionaire Wallenberg family. Including net debt, the deal is valued at 26.5 billion kronor, Gambro said in a statement.

Baxter and Gambro had been negotiating for almost a year, a person familiar with the talks said last month. The deal broadens Baxter’s kidney division, which had been smaller than its other businesses, said Matt Miksic, an analyst with Piper Jaffray Cos. in New York. It also provides the company a way to use overseas cash, Miksic said.

“We like the deal,” Miksic said in a telephone interview today. He recommends buying Baxter shares. “The renal division is a little bit undersized relative to some of their other businesses; this balances that a bit and gives it a little more weight.”

Dialysis Growing

Treatment with dialysis is growing at more than 5 percent annually along with rates of diabetes and high blood pressure, with more than 2 million people in the world currently on some form of dialysis, Baxter said in the statement. Baxter, which also makes blood products and intravenous drugs, trails Bad Homburg, Germany-based Fresenius Medical Care AG in kidney-dialysis products. Gambro ranks third.

Baxter fell less than 1 percent to $65.22 at the close of New York trading. The shares gained 4.1 percent Nov. 23 for the biggest gain in a year after the Wall Street Journal reported the companies were in talks on a deal.

Excluding one-time items, the transaction is expected to trim per-share profit by 10 to 15 cents in 2013 and be neutral or add to profit in 2014, Baxter said in the statement. The company will fund the deal with about $1 billion of overseas cash and about $3 billion of new debt.

“It’s a great use of their overseas cash, which has become a challenge for some of these companies building up overseas balances,” Miksic said. He compared the deal to Johnson & Johnson’s $19.7 billion purchase of Synthes Inc. this year using cash it accumulated outside the U.S. as a way to avoid paying taxes for bringing it back into the country.

Trapped Value

“It’s almost like trapped value in these large multinationals that have these large cash balances,” Miksic said. “By doing a deal like this, they put it to work, releasing value that isn’t reflected in the stock.”

Renal products accounted for about 18 percent of Baxter’s $13.9 billion in revenue last year, according to data compiled by Bloomberg. The purchase is Baxter’s largest in at least 20 years, eclipsing its $965 million acquisition of Immuno International AG in 1996, the data show.

Baxter, founded in 1931 as the first maker of commercially prepared intravenous solutions, according to its website, has risen 33 percent this year, giving the company a market value of about $36.1 billion. Baxter had about $3.2 billion in cash and near-cash items at the end of September.

Baxter Advisers

JPMorgan Chase & Co. acted as Baxter’s financial adviser, while Kirkland & Ellis LLP was legal adviser, the company said.

Gambro was bought by Investor and EQT, a private-equity firm backed by the Wallenberg family, in 2006. The two investors sold some businesses and invested in Gambro after sales took a hit from the U.S. Food and Drug Administration’s decision in 2006 to ban some of its dialysis monitors because of production flaws.

Gambro last year sold its CaridianBCT blood-machine unit for $2.63 billion, including debt, to Terumo Corp., Japan’s largest medical-device maker.

Baxter has completed four acquisitions this year, according to data compiled by Bloomberg, with the largest being its $325 million purchase of Synovis Life Technologies Inc. for its line of soft-tissue repair products.

There have been more than 900 takeovers in the medical products industry globally over the past five years, totaling $65 billion, according to data compiled by Bloomberg. The median buyers paid in a survey of more than 40 similar deals was about 12 times earnings before interest, taxes, depreciation and amortization. Across 70 comparable takeovers, the median was about three times revenue.


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