Back In Their Good Graces

The heat was on Albert Costello. The chairman and CEO of W.R. Grace hadn't delivered a promised spin-off of the company's kidney dialysis unit, National Medical Care. Grace's stock was stalled. Some investors were growing frustrated with a manager one said was "invisible to the Street."

Then came Baxter International's public airing of a $3.8 billion bid for se National Medical on Feb. 2. But Costello had a deal of his own. On Feb. 5, Grace unveiled a surprise agreement to combine NMC with a dialysis-supplies business owned by Germany's Fresenius. Grace shareholders would own 44.8% of the new company, plus some preferred shares; Grace itself would get $2.3 billion.

Baxter refused to back off. "We believe that our offer is substantially higher," said CFO Harry Kraemer Jr. in a Feb. 6 conference call. But Baxter needs to up its bid to at least $4.2 billion, Grace execs say, adding that Baxter had lowballed earlier bids. And the pressure seems to be off Costello--for now. "Everything I've told [investors], I've delivered on," he says. "I really want to get on with the damn business."

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