(Corrects paragraph 17 to remove ticker EQT.N that is not
associated with EQT, the private equity firm. The error first
occurred in Update 2. Corrects paragraph two to add dropped word
* Baxter says Gambro will add to earnings after 2014
* Baxter to issue new debt, cut share buybacks
* Gambro would boost Baxter's kidney business
* Baxter shares down more than 1 percent
By Debra Sherman and Caroline Humer
Dec 4 Baxter International Inc said on
Tuesday that it would buy privately held Swedish kidney dialysis
product company Gambro AB for about $4 billion, a tie up that
would put it in the No. 2 position in the dialysis market.
Baxter, whose shares were down more than 1 percent in
afternoon trading, will finance the acquisition with debt and
cash. The deal, which is expected to close in the first half of
next year, marks Baxter's biggest acquisition since Chief
Executive Robert Parkinson took the helm in 2004.
Baxter manufactures kidney dialysis equipment, drug infusion
pumps and blood therapy products. The Gambro acquisition will
round out Baxter's renal business, which accounted for almost
one-fifth of the company's 2011 revenue of $13.89 billion.
Gambro is one of the largest makers of equipment for
hemodialysis, which is generally performed in a hospital or
clinic. The dialysis from Baxter's machines is called peritoneal
and can be performed at home.
Gambro's sales have been flat to weaker in recent years,
undermined partly by capacity constraints, but Baxter executives
voiced confidence during a conference call with analysts that
the business can be turned around.
"It is a big market and it is going to continue to grow for
a long time. There are only so many kidney transplants available
in the world," Parkinson told analysts.
Hemodialysis is a method that is used to remove waste
products from the blood when the kidneys fail. Another method is
peritoneal dialysis, a treatment for severe chronic kidney
disease that uses the patient's own membrane inside the body as
a filter to clear waste. The third treatment option is a kidney
"At the end of the day, this is an acquisition that is not
dependent on any one pathway for value creation. It is not
dependent on a major new product launch or technological
advancement, and is not dependent on commercial assumptions that
our overly optimistic. This is an acquisition that is dependent
on execution," he said. "This is something we know we can do and
He said the planned acquisition did not represent a change
in the direction for the company, which has invested in stem
cell research and a treatment for Alzheimer's disease.
Shares of Baxter were down 1 percent at $65.14 on Tuesday
afternoon on the New York Stock Exchange.
Some analysts said they were concerned by the price tag and
that the company will scale back its share buyback program in
order to acquire Gambro.
"I think the deal makes sense. I think it does fit well with
their existing renal business and I think there probably are
synergies, but at the same time it is a lot of cash they are
paying for this thing. They are taking on a significant amount
of debt," said Michael Matson, an analyst at Mizuho Securities
Moody's, the credit rating agency, said it put Baxter's A3
rating on review for downgrade following Gambro announcement.
Derrick Sung, an analyst with Bernstein Research, noted that
Baxter will be paying 2.5 times sales, which is not
"unreasonable" but appears to be on the high end of comparable
The Gambro deal marks further consolidation in the kidney
dialysis market, where Gambro and Baxter compete against
companies including U.S.-based DaVita HealthCare Partners Inc
and Germany's Fresenius Medical Care AG & Co KGaA
, the biggest player in the hemodialysis market.
"I think in the longer term, the ambition is to try to
challenge Fresenius," currently the market leader, analyst
Kristofer Liljeberg of Sweden's Carnegie investment bank said.
However, he said, Gambro, which is owned by Swedish
investment holding company Investor AB and its partly
owned private equity company, EQT, had been struggling in recent
years with slow growth and price competition.
Liljeberg said the deal was a good one for family-owned
Investor, which controls several of Sweden's top companies.
Since they bought Gambro, Investor and EQT have sold off its
clinics and a blood component business.
"This is a good long-term home for Gambro," Borje Ekholm,
CEO of Investor, said. "These two companies have a lot of things
in common. They share similar values to improve the lives of
patients. They have a very complementary geographic fit."
A GROWING MARKET
More than 2 million patients globally are on some form of
dialysis, and that has been increasing more than 5 percent
annually, in part because of the rising rates of diabetes and
Excluding special items, Baxter expects the Gambro
transaction to reduce earnings per diluted share by 10 to 15
cents in 2013 and be neutral or add modestly to them in 2014.
The deal is expected to close in the first half of next year.
Excluding the impact of special items and estimated
amortization of intangible assets, the company said the deal
should not affect earnings in 2013 and add 20 to 25 cents a
diluted share in 2014.
Baxter said it expected the deal to add to earnings per
diluted share, excluding special items, after 2014.
The suburban Chicago company said it expected over five
years to increase sales by 7 to 8 percent, excluding the impact
of currency fluctuations, on a compound annual basis, with
earnings per diluted share, excluding special items, rising by 8
to 10 percent.
"Companies like Baxter can unlock a fair amount of value
when they find strategic use for their overseas cash," said
Piper Jaffray analyst Matt Miksic.
Indeed, Baxter said it planned to finance the deal with cash
overseas. Multinational companies that have large international
sales often have difficulties moving that cash back to the
United States where they can put it to use.
J.P. Morgan was Baxter's financial adviser for the deal.
(Reporting by Esha Dey in Bangalore, Debra Sherman in Chicago,
Caroline Humer in New York, and Patrick Lannin and Mia Shanley
in Stockholm; editing by Joyjeet Das, Lisa Von Ahn, Matthew
Lewis and Marguerita Choy)