CareFusion sold for $12.2bn

December 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Medical equipment supplier Becton Dickinson & Co (BD) announced in early October that it had agreed to buy medical device manufacturer CareFusion Corp in a deal worth approximately $12.2bn.

Under the terms of the deal, BD will pay $58 per share for CareFusion, whose shareholders will receive $49 in cash and 0.07 BD shares for each CareFusion share held. The agreed fee represents a 26 percent premium to CareFusion’s closing price of $46.17 on 3 October, the last day of trading before the deal was announced. Both sides expect the deal, which has been unanimously approved by the boards of both companies, to be completed in the first half of 2015, subject to regulatory approval and the approval of CareFusion’s shareholders.

Once the deal has been completed, BD’s shareholders will own approximately 92 percent of the newly combined company, CareFusion’s shareholders will own the remaining 8 percent. The merger of the two firms will create one of the five largest medical device companies in the world. In a statement announcing the deal, Vincent Forlenza, BD’s chief executive, said “Medication management is a $20bn industry. The CareFusion deal doubles our addressable market to $16bn by taking two leaders in subsets to become an overall leader.”

The deal for CareFusion is the latest in a long line of consolidations in the medical and pharmaceutical sector. Indeed, the healthcare industry has been among the busiest markets in one of the most active years for M&A in recent times. The healthcare sector has seen more than $380bn worth of announced transactions in 2014.

BD had been pursuing a deal for CareFusion for some time. The company initially approached CareFusion about a potential deal in the early summer months. The company’s strong earnings in the first two quarters of 2014 made it a particularly attractive proposition. By the same token, BD, under the leadership of Mr Forlenza, has been attempting to refocus its efforts on the consumer market while simultaneously cutting costs. The firm has identified approximately $250m of potential cost cuts which will come from reducing overhead expenses, combining the companies’ operations and trimming the manufacturing operations of both companies. In order to reduce its overall debt pile, BD has also announced that it will suspend its $400m annual share repurchase scheme. Upon completion of the deal, Mr Forlenza will continue in his role as the newly merged firm’s chief executive.

CareFusion, which was spun off from Cardinal Health in 2009, is not BD’s usual acquisition target. Traditionally, the company prefers to make smaller, tuck-in acquisitions. However, it has made an exception to complete a deal for CareFusion. As a result, BD may face a number of integration challenges in the future. Despite the potential challenges posed by the merger, the deal will likely be beneficial to BD in the long run. BD currently records around $8.3bn in annual sales while CareFusion has annual sales of approximately $3.8bn. The two companies currently have a combined market capitalisation of nearly $32bn. According to Kieran Gallahue, chief executive and chairman of CareFusion, the two companies’ compatibility is a key driver for the deal. Due to the global reach and the complementary nature of their products, the tie-up between the two firms makes perfect sense. Around 60 percent of BD’s sales come from overseas whereas 75 percent of CareFusion’s business is in the US.

In order to fund the transaction, BD, which is based in Franklin Lakes, New Jersey, has secured $9.1bn of fully committed bridge financing from investment bank Goldman Sachs. The company also expects to put in place permanent financing in the form of available cash and unsecured notes.

In a joint statement, Mr Gallahue said “As part of BD, we see new growth opportunities for our products in global markets, new value we can create for our customers and new opportunities for our employees as part of what will become one of the largest, global leaders in med-tech. The transaction delivers attractive value for CareFusion shareholders, and represents a powerful endorsement of our strong positions in medication management, informatics across our device platforms and leading products to help improve the effectiveness of acute-care procedures.”

Richard Summerfield