Baxter to buy Gambro for $4B









Healthcare products maker Baxter International Inc. said on Tuesday that it would buy privately held Swedish dialysis product company Gambro AB for about $4 billion to expand its kidney therapy portfolio.

Baxter, whose shares were down 1 percent, will finance the deal with debt and cash. The deal 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.

"This is a very large global market and...it's going to continue to grow over the long term," Parkinson told analysts.

"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 do well."

He said the planned acquisition did not represent a change in the direction of the company, which also makes drug infusion pumps and blood therapy products.

Shares of Baxter were down 1.1 percent at $65.11 near midday on Tuesday on the New York Stock Exchange. The deal is expected to close in the first half of next year.

TOO PRICEY?

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 USA.

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 .

Analyst Kristofer Liljeberg of Sweden's Carnegie investment bank said the Gambro deal would give Baxter the No. 2 clinical dialysis position, behind Fresenius.

"I think in the longer-term, the ambition is to try to challenge Fresenius," Liljeberg said.

However, he said, Gambro, which is owned by Swedish investment holding company Investor AB and its partly owned private equity company, EQT Corp., 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.

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 hypertension.

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.

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Baxter to buy Gambro for $4B