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NEW YORK (Reuters) - Danaher Corp has struck a deal to buy medical diagnostics company Beckman Coulter Inc for $5.8 billion in cash, its biggest bet yet on the medical technology business.
The deal, which would pit the combined company against 3M and General Electric, values Beckman at $83.50 a share. That's 11 percent more than its closing price on Friday and roughly 45 percent above the company's price in December before rumors of a takeover entered the marketplace.
Beckman shares jumped 9.8 percent to $82.51 in morning trading, a bit below the offer price -- suggesting investors do not expect a higher bidder to emerge. Danaher was up 3.2 percent at $49.51 after rising to $50.29, a lifetime high.
The transaction is valued at about $6.8 billion including assumed debt, the companies said. They expect the deal to close in the first half of the year.
About a quarter of the funding comes from cash on hand, 15 percent from equity and 60 percent from new assumed debt, Danaher said on a conference call with analysts.
An aging population and more emphasis on preventive medical care, along with growth of medical technology in markets like China, make clinical diagnostics an attractive $25 billion market, Danaher Chief Executive Officer Larry Culp said.
Danaher outbid at least two private equity consortia -- one made up of Blackstone Group and TPG Capital, the second made up of Apollo Management and Carlyle Group -- that also submitted final offers for Beckman last week, people familiar with the matter told Reuters.
The healthcare sector has underpeformed the S&P 500 for a number of years and by most measurements is now pretty undervalued, said Tim Nelson, senior healthcare analyst for Nuveen Asset Management.
"If you are going to make major investments in the space from a strategic standpoint, the timing is pretty good right now," Nelson said.
"We've seen bigger medtech companies buying smaller companies for growth," he added. "Now we're seeing companies from outside the sector move into the sector in a search for value."
Medical technology, including dental, will account for nearly half of Danaher' sales after the Beckman deal, but longer-term medical will account for closer to 40 percent of revenue, which totaled $13.2 billion in 2010.
"There is no change whatsoever in our strategy," Culp said. "We intend to remain a science and technology, a multi-industry company ... We think this is a truly unique situation."
Danaher has forecast faster growth in countries like India and China this year, citing more reliance on digital technology, demand for environmental technology and a push for energy efficiency. [ID:nN15164703] It gets about a fifth of sales from emerging markets, up from about 12 percent in 2004.
Danaher could cut costs by about $250 million over several years because of the deal, which will add 5 cents to 10 cents a share to earnings this year and 25 cents to 30 cents in 2012.
Beckman Coulter, with annual sales of about $3.7 billion serves hospitals and government health agencies. It would become part of Danaher's Life Sciences and Diagnostics segment, whose brands include Leica Microsystems and Radiometer.
The Danaher segment gets a bigger portion of its sales outside mature U.S. and European markets than other Danaher businesses. About half of Beckman sales are from North America and a quarter from Europe.
Morgan Stanley was the sole financial adviser to Danaher, while Goldman Sachs advised Beckman Coulter.
Beckman hired Goldman to help with a possible sale of the company after a volatile year in which CEO Scott Garrett resigned after a product recall [ID:nN09281936].
Washington-based Danaher, whose products also include environmental testing equipment, said in December that it could spend about $4 billion on acquisitions within the next year-and-a-half. For the balance of the year, Danaher said acquisitions will be bolt-ons outside the medical space.
The company gets high marks among investors for the way its Danaher Business System integrates the many acquisitions it makes each year.
It has remade its portfolio in recent years through both acquisitions and asset sales, to focus on more profitable, less cyclical businesses that have high recurring revenue from an installed base, and with a focus on research and development.
The deal marks a further push into a market where other large industrial companies, such as 3M, Siemens, Philips and GE have an established presence.
GE's medical portfolio ranges from manufacturing and selling big-ticket medical imaging devices like MRI machines to advising hospitals on how to run more efficiently.
Additional reporting by Lewis Krauskopf, Soyoung Kim in New York, Scott Malone in Boston, Susan Kelly in Chicago; Editing by Derek Caney and Lisa Von Ahn