Becton’s $24 Billion Bard Purchase Caps String of Acquisitionsby , , and
Bard acquisition is 12th since Forlenza took over in 2011
Medical suppliers have consolidated under price pressure
For more than a century, medical devices company Becton, Dickinson & Co. got by without any major acquisitions. That’s changed dramatically under Chief Executive Officer Vincent Forlenza, who is turning out to be a serial dealmaker.
The company late on Sunday said it had forged its largest deal ever by agreeing to buy C.R. Bard Inc. for $24 billion to combine two of the world’s biggest health-care suppliers. That marks the 12th acquisition since Forlenza took the helm of the Franklin Lakes, New Jersey-based company more than five years ago, and eclipses the $12 billion acquisition of CareFusion Corp. he oversaw in March 2015.
Forlenza’s shopping spree comes out of necessity. Suppliers to hospitals and doctors have been under pressure to bring down prices, triggering consolidation among makers of medical devices and supplies. Investors seem to approve: Becton’s stock has more than doubled since Forlenza became CEO in October 2011 and surpassed the 132 percent returns generated by the S&P 500 Health Care Equipment Index.
“As a provider to hospitals, you need to be big and have really diversified offerings,’’ said Rudi Van den Eynde, who helps oversee about $1 billion in assets at Candriam Investors Group, including shares of Becton. “Going again after a pretty expensive and big deal, you’d have to say there’s a kind of urgency.”
Too Much, Too Fast?
That urgency, and a 25 premium being paid for Bard, has some questioning whether the company is doing too much, too fast. Becton shares dropped Monday as management worked to convince investors it was the right time for such a sizable takeover. Becton will spend $1.7 billion of its cash, take on $10 billion of new debt and issue $4.5 billion of equity and equity-linked securities. Chief Financial Officer Christopher Reidy said the team would move “very, very quickly” to raise the funds.
“This is a notably ambitious transaction,” J.P. Morgan analyst Michael Weinstein said in a note to clients. “It’s one that we thought could occur, or even would occur, but that it was more likely a 2018 event, given the work still in front of Becton on CareFusion, and management’s stated desire to rebuild its cash balances.”
Becton shares were down 3.7 percent $178.41 at 10:35 a.m. in New York. Bard was up 21 percent to $305, the biggest intraday gain since 2001 and just under the purchase price, suggesting investors believe the deal will close. Antitrust issues shouldn’t be a major concern, since other large deals in the space have gone through.
The agreement marks the fifth year of consolidation among makers of medical devices and supplies, which have announced or completed $373 billion of mergers and acquisitions since the end of 2012, according to data compiled by Bloomberg. The largest: Medtronic Plc’s $42.9 billion acquisition of Covidien Plc, announced in 2014, which allowed Medtronic to move its legal headquarters to Ireland and slash its global tax rate. In January, Abbott Laboratories completed its $30 billion acquisition of St. Jude Medical Inc. to gain bargaining power with hospitals.
Becton’s management pointed to its success with the CareFusion deal, particularly in cutting costs when merging the two businesses, as a reason it felt comfortable doing another large deal right now.
“We have great strategic fit. Our leverage will be where we need it to be, and the timing is right in terms of what they were doing,” Forlenza said on a call with analysts Monday, adding he also appreciates Bard’s international growth potential. “That’s why it came together the way it did.”
Forlenza rose within the ranks at Becton, joining the company in 1980 and guiding the strategic planning and marketing of several business units before becoming chief executive officer in 2011. He added the position of chairman in 2012.
Becton will pay $317 a share for Bard in cash and stock, the companies said in a statement Sunday. It expects $300 million in cost cutting by 2020 from the purchase. Boards of both firms have unanimously agreed to the deal, according to the release.
Bard specializes in minimally invasive devices such as catheters and ports for people with irregular heartbeats, end-stage renal disease and clogged arteries, which Becton says will complement its offerings in intravenous drug delivery systems. The combined companies will also offer products capable of addressing 75 percent of the “most costly and frequent health-care associated infections.”
With larger portfolios, the medical companies can offer hospitals and purchasing groups package deals on products and services that customers are demanding as they themselves merge into larger health systems with centralized operations.
The Murray Hill, New Jersey-based company will add to Becton’s scale in the growing categories of oncology and surgery and expand its offerings in areas such as vascular disease, urology, and hernia care, according to the statement. Their combined scale will increase international presence and opportunities; together, the companies will have about $1 billion annual revenue in China, they said in the statement.
Bard said Monday that the proposed deal needs “antitrust approvals in the United States and certain other jurisdictions.”
Becton Dickinson won unconditional merger approval from the EU in 2015 to buy CareFusion, a maker of intravenous sets and other devices. In that deal, regulators described Bard as one of three significant competitors to Becton Dickinson for biopsy needles in the U.K. and one of two in Ireland.
The EU looked at whether hospitals bought from several suppliers and how easily they could switch to a rival. Hospitals flagged the importance of a company’s local support and training for medical equipment in their choice of product. Pressure on the U.K. health service to make savings helped create “a very competitive landscape,” it said.
Becton Dickinson was advised by Perella Weinberg Partners LP and Citigroup Inc, while C.R. Bard worked with Goldman Sachs Group Inc.